BRADENTON, Fla. - The Bank of New York Mellon on Monday filed a civil suit in Alabama state court seeking a receiver for Jefferson County's sewer system as well as a court order requiring county commissioners to raise sewer rates and impose additional charges and fees to pay bondholders.
BNY-Mellon filed the 36-page complaint on its own as trustee for owners of the $3.2 billion of troubled auction- and variable-rate sewer warrants that are outstanding.
Last fall, the bank and the county's largest insurers of the sewer debt - Syncora Guarantee Inc. and Financial Guaranty Insurance Co. - filed suit in federal court seeking a receiver. But the judge in that case ruled recently that federal law did not allow him to appoint a receiver with rate-setting powers.
The federal judge agreed that a case was made for a receiver, and left the door open for a suit to be filed in Alabama state court.
It is not clear why BNY-Mellon forged ahead on its own with the newest suit. The bank's spokesman could not be reached for comment yesterday.
Both Syncora and FGIC lost their triple-A ratings in the subprime debacle and now are struggling financially. FGIC now is unrated, while Syncora has only a Ca rating from Moody's Investors Service.
In addition to a receiver and a court order requiring commissioners to raise rates and fees, the seven-count lawsuit filed Monday also seeks a judgment against the county for at least $331.7 million, which represents the current amount due on warrants the county has failed to redeem.
The suit also seeks an accounting to determine if sewer system revenues were appropriately classified.
"The warrants at issue are limited-recourse debt. Thus, any judgment for monies owed under the warrants must be paid from the sewer revenues and other assets pledged under the indenture that are indisputably inadequate," the suit said. "With each passing day that the county refuses to raise rates and charges, revenue is lost that cannot be retroactively collected. Therefore, the indenture trustee's legal remedies are inadequate."
Jefferson County has failed to comply with the indenture and rate covenants leading to a number of defaults, the bank's suit said, noting that the county also has failed to make required deposits into the debt service fund, reserve fund, rate stabilization fund, and depreciation fund as required by the indenture.
Charging that work on the sewer system has been "fraught with fraud and abuse," the suit also claimed the county in 2003 suppressed from investors a rate study that showed sewer revenues were insufficient to service the debt load.
The suit was filed Monday as the county furloughed without pay nearly 1,000 employees and cut services because of another lawsuit, which struck down an occupational tax that provided significant revenue for the county's general revenue fund.
Also on Monday, Standard & Poor's dropped the rating on some of Jefferson County's sewer debt to C from CCC because the agency in April had withdrawn its rating on FGIC. At the time, FGIC's insured rating was higher than the county's underlying rating. Another portion of the sewer debt is rated D by Standard & Poor's. Moody's rates all of the county's sewer debt Caa3.