BRADENTON, Fla. - Jefferson County commissioners yesterday said Alabama Gov. Bob Riley and the law firm Bradley, Arant, Rose & White LLP would step in and take over negotiations with creditors in a last-ditch effort to restructure the county's $3.2 billion of troubled sewer debt and avoid a bankruptcy filing.
At the same time, commissioners told Bradley Arant to prepare the necessary paperwork for the county to file for bankruptcy if negotiations are not successful.
Commissioners voted 4 to 0 to approve a sweeping resolution that terminated their current chief negotiator, Birmingham lawyer Bill Slaughter of Haskell Slaughter Young & Rediker LLC. Slaughter's firm served as bond counsel on all of the outstanding sewer debt.
The resolution also terminated the investment banking team hired less than two months ago, saying a "refinancing of the sewer debt on the terms and conditions considered by the current team does not appear feasible at this time." The team consisted of Citi, Morgan Keegan & Co., and Sterne Agee & Leach Inc. (Click to read resolution)
Yesterday's actions came after the governor talked individually with each county commissioner in the last week. Riley refused to call a special session of the Legislature to help the county put a restructuring plan in place and urged commissioners, who have been divided about how to deal with the crisis, to back a single plan. That plan emerged yesterday.
"The commission wishes to pursue final negotiations with holders of the sewer debt, with the assistance of the governor of Alabama, in a good faith effort to avoid the necessity of filing a petition under Chapter 9 of the bankruptcy code," the resolution said. It also said that Bradley Arant would take the lead in "good faith negotiations."
The resolution also directs the county attorney's office and Bradley Arant to "prepare all necessary petitions, pleadings, and other documents to file and prosecute a case under Chapter 9 of the bankruptcy code on behalf of the county in the event the governor and the county attorney advise the commission that such final negotiation has reached an impasse."
It is not clear if preparing a bankruptcy petition could immediately terminate forbearance agreements the county currently has with creditors, including bond insurers and swap counterparties. Those documents stipulate that the current forbearance terminates immediately upon "the commencement by the county of a case under Chapter 9 of the U.S. Bankruptcy Code."
Those agreements also terminate if "the governor of the state of Alabama shall not have called on or before Aug. 29, 2008, a special session of the Alabama Legislature for the purpose of enacting legislation that would permit the implementation of a restructuring plan."
Commission President Bettye Fine Collins said on Monday that the county may default on its debt payments after forbearance agreements expire on Friday, forcing bond insurers to step in to pay the principal and interest. The county's largest insurers, Financial Guaranty Insurance Co. and Syncora Guarantee Inc., formerly known as XL Capital Assurance Inc., could not be reached yesterday. Both had said previously that they would honor their contracts with the county.
Less than two months ago, commissioners fired Bradley Arant saying the firm, and others on the original negotiating team set up in February, had proposed an unacceptable restructuring plan.
The county in June retained Merrill Lynch & Co. to serve as adviser for restructuring the sewer debt but fired the firm in July.