BRADENTON, Fla. — Alabama Gov. Bob Riley asked lawmakers in Washington to consider legislation that would provide debt guarantees for a refinancing that would help Jefferson County avoid a “massive default” on $3.2 billion of sewer debt, an event he warned would reverberate through the municipal bond market.
The governor made the request in a letter Tuesday to House Financial Services Committee chairman Barney Frank, D-Mass., and the ranking Republican on the committee, Spencer Bachus of Vestavia Hills, which is in Jefferson County.
Noting that the committee is considering a number of muni-related bills, Riley outlined the difficulties Jefferson County faces trying to restructure the variable- and auction-rate debt because of the credit market meltdown and the inability to get bond insurance. He acknowledged for the first time publicly that he helped the county negotiate $1.3 billion in concessions from creditors to support refinancing the sewer debt. Riley also said that he worked with the county proposing state legislation that would provide revenue for the county to pay the sewer debt “in full.”
Riley said that he would seek “such legislation in a special session of the Alabama Legislature if part of an overall resolution to the crisis.” But he did not mention that the Legislature’s regular session ended recently without passing a bill that would have provided such a source of revenue by diverting some sales taxes for schools to support a sewer debt refinancing.
Market conditions have impeded the county’s ability to structure a refinancing, particularly since bond insurance is not a realistic source of credit enhancement now, Riley said.
“In the absence of bond insurance, creditors demand 'coverage’ in the form of extra revenues that the county does not have and is not legally obligated to provide.” The sewer debt is a non-recourse net revenue pledge, he noted.
Jefferson County’s sewer debt restructuring would be the “perfect pilot program for a federal bond insurance or guaranty program,” Riley said. “It would allow Jefferson County to lock in creditor concessions and refinance the debt, preventing a massive default that will harm not only the citizens of Jefferson County and the county’s creditors, but the municipal finance market as a whole.”
“Hence, what Jefferson County and its creditors need is not a handout or a bailout from the federal government,” Riley said. “Rather, Jefferson County needs access to the market, which has evaporated due to extraordinary circumstances beyond its control.”
In another matter related to Jefferson County’s sewer debt, commissioners today or early next week are expected to consider new forbearance agreements that would continue to delay payments on swaps and liquidity facilities. Those forbearance agreements expire today.