BRADENTON, Fla. - Jefferson County, Ala., faces expiration of its latest forbearance agreements today and may default on some of its $3.2 billion of troubled sewer debt, most of which is in variable- and auction-rate securities.
Meanwhile, a lawsuit seeking a receiver for the financially troubled sewer system continued with U.S. District Court Judge R. David Proctor talking to an unknown number of parties in the case, presumably to schedule what Proctor has called a "settlement summit."
Alabama Gov. Bob Riley, who has become a facilitator in negotiations to restructure the sewer debt, reportedly worked over the weekend in talks with Jefferson County's creditors.
County Commission President Bettye Fine Collins said told reporters yesterday that she talked with Riley on Monday and he was optimistic that negotiations would be successful, according to a report by Reuters.
Riley's press secretary, Tara Hutchison, said yesterday afternoon that she was not aware of the status of negotiations. She said the governor has made no public statement.
Collins, in local interviews, said that forbearance agreements with creditors may lapse today and she did not expect commissioners to take any action either toward making debt payments that would become due or filing for what would be the largest municipal bankruptcy in U.S. history.
The county has forbearance agreements expiring today on its sewer debt with its investment and liquidity banks, as well as with counterparties that hold more than $5 billion in notional amounts of swaps covering the sewer debt.
The county also has a forbearance agreement expiring today that delayed repayment on $120 million of general obligation variable-rate warrants now held by banks. It is not clear if sewer restructuring talks involve the GO debt.
Syncora Guarantee Inc. and Financial Guaranty Insurance Co. filed suit seeking a receiver for the sewer system Sept. 16. In court documents they said that if the county defaults due to expiration of the forbearance agreements, they expect claims will be made on debt service reserve policies in the amount of $12.1 million and $1.5 million, respectively, and on municipal bond insurance policies in the amount of $46.5 million and $25.4 million, respectively. The Bank of New York Mellon, the county's bond trustee, also is a plaintiff the suit.
The suit claims Jefferson County has failed to take action necessary under bond covenants to make sure sewer revenues are sufficient to pay debt service. FGIC and Syncora have $1.19 billion and $809 million of net par exposure, respectively, to the county's sewer debt. So far, Syncora has paid $46 million on its policies on the county's debt as forbearance agreements were negotiated over the past seven months.
Jefferson County has filed a counterclaim charging that the insurers caused the financial crisis. The county is seeking jury trial as well as compensatory and punitive damages in excess of $100 million.
Proctor yesterday held a second conference call with parties to the receiver lawsuit. The result of that call was not known before press time.
Proctor, in an order on Friday, told attorneys to assemble all parties that could materially affect a resolution of the suit so they could participate in yesterday's conference call.
"Counsel for the parties should inform these third parties that the court encourages them to participate, via counsel who have the authority to agree on their behalf ... in an anticipated two-day settlement summit, in the telephone conference," Proctor's order said.