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Jefferson County, Ala., Could Exit Bankruptcy This Week

BRADENTON, Fla. – Jefferson County, Ala.’s quest to exit bankruptcy played out on dual fronts Wednesday, with the potential of getting approval this week for its plan to exit Chapter 9 after two years.

County commissioners on Wednesday finalized pricing documents for $1.8 billion of sewer warrants sold this week. The county received $3.25 billion in orders for the debt, according to Citi Managing Director David Brownstein.

More than 200 domestic and international investors participated in the deal, which is seen by some as a potential template for other distressed issuers needing to resolve creditor’s claims while in bankruptcy.

At the request of investors, call premiums ranging from 102% to 105% were added to all six series of warrants that were sold. The three-day pricing resulted in an all-in cost of borrowing of 6.964% and an average maturity of 32.03 years, though some of the warrants have 40-year maturities.

Closing on the new debt is anticipated Dec. 3, and proceeds will be used to pay creditors who have agreed to write down about $3.1 billion of outstanding defaulted sewer warrants.

At the same time commissioners approved the transaction that is integral to the plan of adjustment, attorneys in Birmingham’s federal courthouse argued about its feasibility. 

U.S. Bankruptcy Judge Thomas Bennett overruled objections from two groups representing some of the sewer system’s ratepayers. He also took time to hear from several local residents who complained that they could not afford to pay their sewer bills.

Kenneth Klee, one of the county’s bankruptcy attorneys, said if there was doubt about the plan’s feasibility, Jefferson County would not have been able to sell $1.8 billion of sewer warrants earlier in the week.

Sewer system repairs and rates were the focal point of the afternoon court session when Jefferson County’s sewer consultant Eric Rothstein testified.

The operating plan for the sewer system going forward includes funding for program management, a first for the county, Rothstein said, adding that the capital plan must be reviewed each year.

He and county attorneys said that as Jefferson County’s credit outlook improves, refunding the warrants in the future could help ease prospective rate increases.

Bennett had set aside three days for the confirmation hearing. When it ends, he could immediately issue the confirmation order approving the plan or take some time to prepare an opinion and formal order, said bankruptcy attorney John Whitlock, a partner with Edwards Wildman Palmer LLP.

“The appeal period for a confirmation order is 14 days from the entry of the order,” he said.

The judge could prevent the confirmation order from becoming final by issuing a stay until after the appeal period has passed, or the judge could let the confirmation become effective immediately.

In a proposed order confirming the plan filed by Jefferson County, the county suggested that confirmation not be subjected to a stay.

“If the plan is confirmed on Friday or shortly thereafter, the confirmation will satisfy the condition for the underwriters to close the sale of the new warrants,” Whitlock said, referring to the planned Dec. 3 closing on the new warrants. “As long as the court agrees not to stay the confirmation order, the underwriters may be willing to close even if there is an appeal, since the appeal is likely to become moot once the new warrants are sold and the plan is consummated.”

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