BRADENTON, Fla. - Alabama Gov. Bob Riley on Friday afternoon said he struck a deal with investors in Jefferson County's troubled sewer debt and bond insurers to extend debt forbearance agreements until Sept. 30 at no cost to the county.
The governor also said creditors would consider a debt restructuring that would potentially reduce the county's huge debt burden.
The announcement came following the governor's first negotiating session with the county's creditors.
The county's existing forbearance agreements with liquidity banks, bond insurers, and swap counterparties terminated Friday after Riley earlier refused to call a special session of the Legislature to consider helping the county implement a restructuring plan that was politically unpopular.
The financial crisis surrounding the $3.2 billion of sewer debt has threatened to push Alabama's largest county, which includes the city of Birmingham, to seek protection from creditors in bankruptcy court.
In a statement, Riley said creditors agreed to present Jefferson County with a proposal to forbear sewer debt payments at no cost to the county. Riley also said creditors were presented with a plan to restructure the county's existing floating-rate securities into fixed-rate bonds.
"The county presented a proposal that provides for a restructure of the existing bond debt at lower, fixed interest rates over a longer term," Riley's statement said. "Creditors received the proposal and agreed to respond next week. The tone of the meeting was positive and constructive and I remain willing to facilitate further progress towards a solution."
Riley's press secretary, Tara Hutchison, said no other information was available, including names of the creditors at the meeting. She said she was unaware of any additional negotiating sessions being scheduled.
"The only statement we're making is the one that was released," Hutchison said.
Last week, Jefferson County commissioners fired their latest negotiating team and announced that the governor and the law firm Bradley, Arant, Rose & White LLP would step in and take over negotiations with creditors. At the same time, commissioners ordered attorneys to prepare legal documents necessary to file for Chapter 9 bankruptcy.
Most of the sewer debt is in auction- and variable-rate securities that have seen interest rates soar to penalty rates as high as 10% due to downgrades for bond insurers. Adding to the financial problems are payments on swaps that became mismatched as the credit crunch worsened.
The county defaulted on swap agreements by failing to post collateral or insurance after the downgrades. The sewer bonds are now considered junk by Moody's Investors Service and Standard & Poor's, along with nearly all of the county's non-sewer credits.