Moody's Investors Service said Monday that three plan support agreements with a majority of creditors holding Jefferson County, Ala.'s defaulted sewer warrants would result in an overall recovery rate of about 60% for investors holding $3.1 billion of outstanding debt.
"This level of recovery is consistent with Moody's Ca rating, which implies a recovery range of 35% to 65%," said analyst Christopher Coviello.
The agreements move the county closer to resolving its bankruptcy plan, though many legal and credit hurdles remain, he said.
The plan support agreements would reduce sewer debt levels, set ceilings for sewer rate increases, and settle various lawsuits related to the system with the ultimate goal of exiting bankruptcy by the end of 2013.
A key step after the county emerges from Chapter 9 bankruptcy is refinancing the sewer debt by the end of the year.
The three agreements are between the county and the largest warrant holders, JP Morgan, three bond insurers, and seven hedge funds, which hold approximately 78% or $2.4 billion of the outstanding sewer revenue debt.
The next step is for the County Commission to file a plan of adjustment and disclosure statement with the bankruptcy court. The court is required to approve or disapprove the disclosure statement by Aug. 30, according to Moody's.
"The plan of adjustment and disclosure statement should also provide details on how officials expect to resolve the county general fund's narrow cash position, which resulted in part from the loss of its occupational tax in 2011," Coviello said.
The legislatively enacted job tax, which provided significant revenue for the county's general fund, was struck down by Alabama courts.
Moody's currently assigns a Caa3 rating to the county's general obligation warrants, a Ca rating to the lease revenue warrants, and B3 to the limited obligation school warrants.
Jefferson County has been in default on most of its sewer revenue warrants since 2008.
The county filed for bankruptcy protection on Nov. 9, 2011.
"Moody's will continue to monitor the expected recovery to bondholders, based on the ongoing negotiations and actions by involved parties," said Coviello.
