BRADENTON, Fla. — Jefferson County, Ala., commissioners put creditors on notice Thursday that they will reject agreements that support the county's bankruptcy exit plan because the refunding won't work as currently structured.
At the same time they kept the door open by continuing to plan to refund sewer system debt to exit bankruptcy by the end of the year.
Creditors already agreed to $1.2 billion in haircuts, but the county now says it needs $350 million in additional concessions from creditors because interest rates have risen since the refunding plan to deal with $3.1 billion of defaulted sewer warrants to exit from Chapter 9 was proposed several months ago.
In case the new haircuts are received, commissioners on Thursday also appointed members of the sales syndicate and Wells Fargo as trustee for the refunding deal. They also agreed to obtain ratings from Fitch Ratings, Moody's Investors Service, and Standard & Poor's.
Citi has already been chosen as the book-runner for the deal. Public Resources Advisory Group is the financial advisor.
However, county commissioners said the refunding as envisioned won't work under current market conditions because interest rates have risen since it was first proposed several months ago.
Commission President David Carrington said that if the new concessions are not granted by Nov. 4, the county will terminate the agreements, and that may derail the plan of adjustment that has been proposed.
County officials went to New York last week to meet with some creditors to discuss new haircuts, but they reportedly did not meet with hedge funds that bought the sewer debt at a deep discount. More meetings are scheduled next week.
The current agreement involving $3.1 billion of sewer debt calls for creditors to receive about $1.83 billion of cash from the refunding later this year.
JPMorgan, the county's largest creditor with $1.22 billion, agreed to take the biggest loss and would receive about 31 cents on the dollar. That paves the way for others to see smaller haircuts.
Those creditors, including hedge funds, would recover 65% to 80% of the par on their investments. Investors who opt to retain their insurance wrap would get the lower amount of cash.
If creditors do not agree to larger haircuts, the county has threatened to cram down higher losses without their consent.
Jefferson County, the most populous county in Alabama and home to Birmingham, filed for Chapter 9 bankruptcy in November 2011 with $4.2 billion in debt.
The county has negotiated deals to repay general obligation, school, and lease warrants. Most of that debt will be paid in full, though some creditors agreed to extend maturities by using insurance, and others agreed to cut penalty interest rates.