Alabama state senators Tuesday passed a bill that originated in the House placing strict requirements on Jefferson County’s issuance of debt and use of swaps. The measure is now on its way to Gov. Bob Riley.
HB 613 requires any debt exceeding $5 million that is issued by the county to undergo a public hearing. Public notice and hearing requirements also apply to any swaps.
The primary sponsor of the bill, Rep. Paul DeMarco, R-Homewood, has said it will offer more transparency for the county’s bonds and swaps in the future.
The bill requires Jefferson to publish the amount of debt being sold, the maturities, whether the debt will be sold through negotiation or competitively, the names of underwriters involved, a list of each person paid for services and expected fees, the source of security for the debt, where the public can obtain the preliminary official statement, and other provisions.
In the case of a swap, the county must publish a notice with the notional amount and purpose of the swap, the terms of payment by the county and counterparty, the expected termination date and source of payment, a description of the terms used for awarding the swap, and the names of people paid for services.
Jefferson County has been in a financial crisis because nearly $3.2 billion of sewer debt — originally sold as fixed-rate debt for sewer reconstruction — was refinanced into variable- and auction-rate mode synthetically fixed through swaps. The county’s ratings are at junk levels.
The situation has led to speculation that the county might file for Chapter 9 bankruptcy. Recent published reports have suggested that the county could be reaching a deal with creditors, but no public announcement has been made. The county has sued JPMorgan, the largest creditor, and others over the failed debt.
The sewer bond trustee, the Bank of New York Mellon, is seeking a receiver for the sewer system in state court. A judge in that case has scheduled trial for June 14 through June 25.
