BRADENTON, Fla. - There is no legal basis for the judge overseeing Jefferson County, Ala.’s bankruptcy case to reject the opinions of expert witness James White, argue opponents of the county’s plan to exit Chapter 9.
White, a former financial advisor to the county, was not bound by any confidentiality agreement or fiduciary duty, attorneys for Charles Wilson and two other ratepayers on the county’s sewer system said in an initial brief Friday.
White’s arguments are a key component of the Wilson ratepayers’ objections.
The Wilson ratepayers are one of two groups objecting to the county’s plan to resolve $3.14 billion of defaulted sewer system debt.
U.S. Bankruptcy Judge Thomas Bennett is expected to hear several days of arguments about the plan beginning Wednesday.
By then, Jefferson County hopes to have priced up to $1.8 billion of new sewer warrants. Of that amount, $1.74 billion will be used to pay off creditors holding $3.14 billion in defaulted outstanding sewer warrants.
Closing on the new warrants is contingent on confirmation of the Chapter 9 plan of adjustment becoming final.
In this week’s hearing, Bennett will consider the Wilson ratepayers’ claim that the county has not cited any confidentiality agreement that would have precluded White from discussing or disclosing information he learned while he was a financial advisor to the county in 2007 and 2008.
White has said that Alabama law precludes the county from selling refunding warrants with maturities that are longer than the existing warrants. The debt being priced this week has maturities to 40 years, and will refund 40-year sewer warrants sold in 2002 and 2003.
Jefferson County’s attorneys said that theory is wrong, and seemed to be based on “privileged and confidential information of the county” White learned when he was a financial advisor for the county in 2008 – “information that White only had access to by virtue of his fiduciary status,” they claim.
“The county has not produced any documented evidence which would serve as a preclusive effect to White’s opinions, and only claims that he was acting as a ‘fiduciary,’ which allegedly would prevent him from disclosing the information related to the county’s deliberations on the 40-year bond maturity period,” the Wilson ratepayers said.
The county also failed to disclose “that financial advisors were not considered ‘fiduciaries’ for purposes of the securities or financial industries until the passage of the Dodd-Frank Act in October 2010,” the Wilson group contended.
“As such, there can be no breach of privilege or confidentiality because a fiduciary relationship did not exist and no confidential relationship existed which would require White to keep such information confidential in perpetuity,” said the Wilson ratepayers, calling the county’s filing a “meritless and baseless attack” on White.
In a court filing last week, Jefferson County said that its plan of adjustment should be confirmed because “it is the result of extensive, arms’ length, and good faith negotiations” that creditors voted overwhelmingly to approve.
The county’s sewer creditors agreed to write off nearly $1.5 billion of $3.14 billion in outstanding debt, the county’s attorneys said, adding, “That debt is being compromised and extinguished at approximately 54 cents on the dollar, a remarkable result for the county.”
The plan also restructures more than $1 billion of “non-sewer debt by, among other things, converting risky variable-rate debt into fixed-rate debt and amortizing debt service to match revenues,” the filing said. “The plan provides for repayment in full of all non-sewer warrants on terms favorable to the county, which ultimately will help the county regain access to the capital markets.”
If the plan is approved it will also extinguish numerous lawsuits.
Along with arguing that the plan is feasible and should be confirmed, the county has filed numerous exhibits covering thousands of pages. The documents can be found at www.jeffersoncountyrestructuring.com.