Jefferson Commissioners to Be Asked To Extend Forbearance Until Feb. 20

BRADENTON, Fla. - Jefferson County, Ala., commissioners today will be asked in a special meeting to extend forbearance agreements on the county's ailing sewer system debt delaying payments until Feb. 20, 2009.

Alabama's largest county has been negotiating since February on ways to restructure approximately $3.2 billion of warrants, most of which is in troubled variable- and auction-rate securities covered by more than $5 billion of upside-down swaps. Warrants are similar to bonds.

Gov. Bob Riley has stepped in as a facilitator of restructuring negotiations and a plan on the table to resolve the credit crisis includes $1 billion on concessions from creditors, including forgiveness of swap termination payments estimated to be valued at around $400 million.

However, the county has been unable to find the approximately $30 million, in addition to sewer system revenues, necessary in order for the restructuring plan to work.

Another complicating factor could emerge this week as Jefferson County commissioners, in their regular meeting tomorrow, consider a proposed resolution by commissioner Jim Carns to stop automatic sewer rate increases put in place by an ordinance passed in 1997.

"The public does not want rate increases," Carns said in a statement. "Here is an opportunity to make sure we do not have to have them."

Warrant documents for the sewer system require that the finance director evaluate rates and determine if revenues are sufficient to comply with rate covenants.

Without the proposed change, rates could automatically go up more 20%, said Carns, who chairs the committee that oversees the sewer system.

"The people have suffered enough, and it is time to put a stop to out-of-control rate increases," he said. "With the passage of this resolution, commissioners will be accountable to the people. No longer will commissioners be able to stand behind an outdated resolution that legitimizes annual increases on rate payers who are already paying too much."

According to sewer warrant offering documents, the automatic rate ordinance does "not constitute a contract between the county" and bondholders, and the ordinance and rates can be modified at any time by the commission.

However, Carns' resolution got attention from the federal judge presiding over a lawsuit attempting to place the sewer system into receivership. The suit was filed in September by the warrant trustee, the Bank of New York Mellon, and Financial Guaranty Insurance Co. and Syncora Guarantee Inc., which insure most of the sewer debt.

County attorney Jeff Sewell told commissioners last week that U.S. District Court Judge R. David Proctor is concerned about the proposal to amend the automatic rate ordinance while special masters are in the process of evaluating the sewer system.

Proctor on Nov. 25 appointed John Young, president of American Water Services Co., and John Ames, an attorney with Greenbaum Doll & McDonald PLLC, as special masters and officers of the court.

According to the judge's order, Young is evaluating operations and business aspects of the sewer system, including its rate structure. Ames is reviewing governing legal documents, warrant holders' collateral, operating payments, potential claims, legal issues pertaining to rates, and revenue enhancements.

The special masters are to produce a report by Dec. 22 concerning the county's entitlement to an operating reserve for the sewer system separate from accounts required to be maintained by the indenture trustee. Their final report is due by Jan. 19 concerning their findings and recommendations. A receivership hearing is scheduled Jan. 26.

Jefferson County agreed to pay half the cost for the special masters, while FGIC and Syncora will pay the other half.

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