BRADENTON, Fla. — Bankrupt Jefferson County, Ala., officials have a busy week ahead with two major court hearings scheduled.
County commissioners on Tuesday are holding a closed-door meeting with attorneys to discuss litigation strategy, according to President David Carrington.
On Wednesday, the county will be in Birmingham federal court updating Judge Thomas Bennett on plans for exiting Chapter 9 bankruptcy, and how creditors will be treated. It is a continuation from a hearing that was held May 9.
Attorneys are expected to provide more detail on the county's schedule for filing a plan of adjustment, and how the county plans to adjust its debts.
So far, Jefferson County has negotiated three deals with creditors all relating to general obligation warrants. Only two of the three agreements appear to result in haircuts.
The latest settlement is with Bayerische Landesbank over $52.875 million of defaulted Series 2001B variable-rate general obligation warrants and JPMorgan over $52.125 million of 2001B variable-rate GO warrants.
The GO restructuring would return the warrants to their original maturity schedule though 2021, and waives default interest rates and post-bankruptcy interest.
That settlement is contingent on reaching a satisfactory agreement regarding a portion of the sewer debt with JPMorgan, the largest holder of sewer warrants. The bank already settled securities and related charges with the Securities and Exchange Commission, though the firm did not admit or deny guilt.
In the SEC settlement, JPMorgan paid Jefferson County $75 million and forfeited $647 million of claimed swap termination fees.
In a sewer-debt restructuring agreement the county rejected shortly before filing for bankruptcy, JPMorgan agreed to take about $750 million of the $1.09 billion in concessions offered at the time by various creditors.
In another matter before the court Wednesday, attorneys will argue motions by Jefferson County and Bank of New York Mellon which seek to dismiss an adversarial suit brought by elected and local officials who are attempting to prove that more than $1.6 billion of sewer warrant swaps should be voided because of corruption and violations of the state constitution.
"Plaintiffs have suffered an immediate injury to their property values and future available disposable income to satisfy payments exacted by the county to pay the indenture trustee for the unlawfully implemented swap warrant financings," attorney Calvin Grigsby said in response to the motion to dismiss.
Jefferson County has asserted that the swaps are lawful and "takes a position diametrically opposed to their customers - the taxpayers and ratepayers - in resolving a lawfully filed claim," said Grigsby, who is also president of broker-dealer firm Grigsby & Associates Inc. The brokerage is inactive, according to the Financial Industry Regulatory Authority. However, it is registered as a municipal financial advisor with the Municipal Securities Rulemaking Board.
Jefferson County filed the country's largest municipal bankruptcy in November 2011 stating that it had $4.2 billion of debt mostly related to its overleveraged sewer system.
As of September 30, the county reported in unaudited finances total outstanding debt of $4.168 billion. Of that, $3.1 billion is sewer debt for which BNY Mellon is the trustee. The county has not released its 2012 audit.
The county's bankruptcy case is extremely complex, and has many outstanding legal facets, including 10 ongoing adversary cases that are being resolved outside of the core bankruptcy filing, according to Waller Lansden Dortch & Davis LLP, the lead legal firm for BNY Mellon.
Some 155 attorneys have appeared in the case, most representing some of the 5,856 creditors, Waller says on a special website at www.waller-jeffco.com/statistics.