BRADENTON, Fla. - Jefferson County, Ala., commissioners have scheduled a special meeting this afternoon to approve the extension of forbearance agreements that expire today.
Commissioners will be asked to approve delaying, for a second time, a $53 million principal payment owed to redeem variable-rate sewer warrants. Repayment of the warrants has been accelerated because of bond insurer downgrades.
The forbearance agreements are between the county and liquidity providers, bond insurers, and swap counterparties and are designed to give everyone more time to work on a solution to the county's financial crisis.
The commission's first forbearance agreement delayed the April 1 payment of the $53 million until today, but it also allowed the county to make an interest-only payment of approximately $4.2 million
Patrick Darby, a partner in the law firm Bradley Arant Rose & White LLP and Jefferson County's chief negotiator in its financial crisis, could not be reached yesterday to comment about what would happen if the commission does not approve new forbearance agreements.
The county has $3.2 billion of outstanding sewer debt, most of which is in troubled auction- and variable-rate securities. Interest rates on those warrants have soared because of bond insurer downgrades. In turn, the county's underlying sewer ratings as well as other credit ratings have been downgraded.
In a proposal designed to alleviate the financial crisis, the county has asked banks, swap counterparties, and bond insurers to allow sewer debt to be repaid by adding excess sales tax revenues to existing sewer revenues without increasing sewer rates.
Darby, whose specialty is representing debtors and creditors in complex business reorganizations, said last Tuesday that he did not expect a final resolution of the financial problems by today.
"I would hope all the parties agree to extending the forbearance agreements," Darby said then. "This is a process. It's not something where there are changes day to day."
On Thursday, the county's two biggest bond insurers released a joint statement saying they would stand behind their policies on the major portion of the county's outstanding $3.2 billion of sewer debt, most of which is in troubled auction- and variable-rate securities on which interest rates have soared because of bond insurer downgrades.
Financial Guaranty Insurance Co., which has $1.19 billion of net par exposure on Jefferson County's variable-rate debt, and XL Capital Assurance Inc., which has $811 million of exposure, announced that they had engaged a team of local and national experts to work with the county commission and Jefferson's financial and legal advisers to develop a "remediation plan" aimed at delivering long-term financial integrity and stability to the sewer system.
In the meantime, Alabama lawmakers concerned about what could be the largest municipal bankruptcy in U.S. history, filed several bills and resolutions last week. The Senate has already passed a resolution creating a task force to oversee Jefferson County's remediation plans. The House has yet to take up that resolution.
Lawmakers this week are set to begin debate in committees on bills that would create the Alabama Public Management Authority and that would require that the authority oversee cities, counties, and utilities in default of their debt. Those bills would affect the entire state.
