BRADENTON, Fla. – Jefferson County, Ala.’s top bankruptcy attorney said a report by Moody’s Investors Service showing that the county’s bondholders will have lower recoveries than the county anticipates is “unfair.”

Jefferson County filed for Chapter 9 bankruptcy in November 2011 with $4.2 billion in warrants, which are similar to bonds. Of that debt, $3.1 billion is in defaulted sewer system warrants. Creditors are currently voting on the plan of adjustment, and ballots must be returned by Oct. 7.

Moody’s said Thursday that recent local government defaults, including Jefferson County’s, are likely to have recovery rates meaningfully lower than historical averages.

Moody’s calculations showed that Jefferson County’s average recovery rate for sewer system warrant holders is expected to be 55% to 60%. For general obligation warrant holders the recovery rate it is about 70% to 85%, and the rate of return for lease rental revenue warrants is 55% to 65%, according to Moody’s.

The county has said that move creditors should expect higher recovery rates.

Under the sewer system debt plan, JPMorgan is the largest creditor and is taking the biggest loss measured both in dollars and percentages. The bank will get $375 million of the $1.22 billion owed. That allows remaining creditors to receive higher recovery rates between 65% and 80%. Creditors who won’t give up bond insurance coverage will receive the lower cash recovery and keep the insurance wrap.

“Moody’s blends [JPMorgan] into their analysis,” said county attorney, Kenneth Klee, in an email response to Moody’s report. “This is quite unfair as the typical holder will recover 80 cents [on the dollar] if the plan is confirmed and becomes effective.”

The county’s plan also calls for creditors holding general obligation, lease, and school warrants to be made whole, over time. In some cases, the county negotiated extended maturities, the use of insurance payments, and reduced interest payments due to major holders of variable-rate debt.

“Our definitions of default and recovery exclude payments by bond insurers,” said Moody’s analyst Anne Van Praagh.

“If an insurer steps in and makes a payment on behalf of an issuer, we treat that as a default,” she said.

“All of our recovery estimates are based on recovery derived solely from the debt issuer or obligor,” and do not incorporate any additional recovery derived from third parties, she said.

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