BRADENTON, Fla. - Alabama Gov. Bob Riley is once again asking the federal government to help Jefferson County restructure its $3.2 billion of troubled sewer debt.
Riley suggested ways that Washington could help Jefferson County resolve the sewer crisis in a March 5 letter to Treasury Secretary Timothy Geithner and Federal Reserve Board chairman Ben Bernanke.
The letter apparently was a follow-up to a meeting Riley had with the men in in late February.
Riley's letter said that revenues exist to pay Jefferson County's debt in full over time, and that the county "can and will pay the restructured debt in full." He noted that the financial institutions that "helped the county construct its unsustainable debt structure have agreed to support a restructuring of the debt with a $650 million cash contribution, plus a waiver of all swap termination fees."
All of the county's swaps associated with the sewer debt have been terminated and the county estimates that the associated fees total $748 million.
Legislation is being pursued that would allow the county to supplement net sewer revenues with tax proceeds that would provide "deep, long-term coverage for a debt refinancing, and will create various mechanisms to make a refinancing more attractive to the market, such as a bankruptcy remote state funding authority to issue new debt," Riley's letter said.
Riley went on to detail three avenues the government could take to assist Jefferson County - provide a guaranty to bondholders, a direct purchase by the governor of debt held by bondholders, or allowing tax credits to pass through to the county under the Build America Bond program.
"I believe that prompt action is warranted by the gravity of the situation in Jefferson County, and the threat it presents to the financial institutions involved and municipal finance market in general," Riley said. "Federal support will be a necessary part of any solution."
Riley had previously asked for a backstop or guaranty under the Bush administration, which was denied.
The county is teetering on the verge of the largest municipal bankruptcy ever in the U.S. because of the market meltdown. Most of the sewer debt is in auction- and variable-rate mode, which has seen interest rates skyrocket or repayment accelerated largely because of rating downgrades affecting bond insurers.
In addition, the major insurers of the county's sewer bonds - Syncora Guarantee Inc. and Financial Guaranty Insurance Co. - and bondholders trustee Bank of New York Mellon are seeking a receiver for the sewer system. They claim Jefferson County officials have failed to raise revenues appropriately to pay debt service.
A hearing on the request for a receiver was scheduled to begin today. The federal judge in the case yesterday was considering a request by the county to delay the hearing.