WASHINGTON — An industry group urged a federal bankruptcy judge not to remove the court-appointed receiver for Jefferson County’s sewer system, warning such a move would negatively impact revenue bond financing for infrastructure projects nationwide.
In a Nov. 17 letter to Judge Thomas Bennett, the Securities Industry and Financial Markets Association cited “potentially significant negative” implications for the muni market if the Alabama county succeeded in an effort to “wrest control” of its sewer system and revenues from the receiver.
SIFMA said the existence of such a receiver, who takes over the operation of a revenue-producing facility when an issuer undergoes financial stress, serves as a key to infrastructure financing because bondholders who purchase revenue bonds secured by special revenues know the revenue pledge will continue and be paid even if the municipality files a Chapter 9 bankruptcy proceeding, as Jefferson County has done.
“Upsetting that remedy here will negatively impact revenue bond financing for infrastructure projects across America just when our country needs it most,” wrote Leslie Norwood, SIFMA’s managing director and co-head of the municipal securities division.
SIFMA’s letter comes as Bennett is scheduled to hear arguments Monday on whether John Young, who was installed as receiver of the county’s sewer system by a state court judge in September 2010, should remain in place.
Jefferson County filed a Chapter 9 petition on Nov. 9 after failing to reach a restructuring agreement with creditors over $3.14 billion of defaulted sewer warrants.
In court documents supporting its petition, the county asked that Young relinquish control of the sewer system by Nov. 10. Young, who filed an emergency motion asking Bennett to allow him to remain in control, told a group of analysts in New York this week he thought the law was on his side.
Still, SIFMA warned Bennett that removing the court-appointed receiver could “seriously impair” market access for some 60,000 municipal issuers or increase their borrowing costs, limiting local financing of projects and infrastructure.
In addition, Norwood wrote, removing Young would harm Jefferson County, “as it would likely be shut out from the capital markets for the foreseeable future,” further complicating its return to solvency.
