BRADENTON, Fla. — Investors holding $3.14 billion of Jefferson County, Ala.’s sewer warrants should continue to see uninterrupted debt-service payments over the next few months thanks to an interim agreement approved by the county’s bankruptcy judge this week.
The temporary resolution to maintain debt-service payments was hammered out after an emergency filing from Syncora Guarantee stating that “its very viability as a going concern may be threatened because of the heavy burden it must shoulder.”
The insurer said it covers up to 77% of the regularly scheduled principal and interest payments that Jefferson County does not make, and the county had made fewer sewer revenues available for debt payments since early January. Syncora said it and other insurers of the sewer warrants likely would be required to make up the difference.
The situation gave rise to court hearings this week in which attorneys for insurers and the trustee, Bank of New York Mellon, argued that since the county resumed control of the sewer system from a receiver in early January, county officials turned over payments of $4.5 million and $2.4 million.
Before Judge Thomas Bennett took control away from the receiver, around $8.5 million had been made available for debt service.
In an emergency hearing Wednesday, Bennett was told that negotiations led to an agreement whereby the county agreed would provide the trustee with $5.5 million a month for debt service, plus an additional $5.2 million payment from a capital account to supplement revenues already turned over for February.
The county also agreed not to deduct legal fees or capital expenses from sewer revenues for the time being. The interim agreement expires May 1.
The disagreement over the amount of revenue for debt payments initially surfaced in a Feb. 3 lawsuit filed by BNY Mellon, which makes payments on the county’s $3.14 billion of sewer warrants. Most of the debt is in default.
The bank alleged that Jefferson County was improperly withholding revenues for operating expenses such as legal fees related to the bankruptcy filing. The county denied the charge, but the dispute set the stage for this week’s emergency hearing.
Bennett has scheduled formal hearings for April 4-6 on the suit filed by BNY Mellon over the county’s allowable uses of sewer revenues.
The judge also told attorneys at Wednesday’s meeting that he was still considering whether the county’s Chapter 9 filing is allowable under Alabama law. State law specifies that local governments with bonds outstanding -- but not those with the warrants that Jefferson County has outstanding -- can file for bankruptcy.
Bennett said he asked law firms in Montgomery and Tuscaloosa to do research on the issue. He did not indicate when he would rule on the matter.
