BRADENTON, Fla. - Moody's Investors Service concluded that investors holding Jefferson County, Ala.'s general obligation limited tax warrants fared better than the rater had anticipated in the county's exit from bankruptcy.
The wide dispersion of recoveries for Jefferson County's creditors within the same security class continues a trend occurring in other municipal bankruptcies and restructurings, including Harrisburg, Pa., Detroit, and Stockton, Calif., Moody's said March 18.
Alabama's most populous county exited Chapter 9 bankruptcy Dec. 3 after substantial implementation of its adjustment plan. The cornerstone of the plan was the sale of $1.8 billion of sewer refunding warrants to pay creditors holding $3.14 billion in sewer debt.
The county also had $1 billion of other debt outstanding, including the GO limited tax warrants.
Creditors holding GO debt realized recovery rates that ranged from 88% to 95%, according to Moody's.
"The overall GO recovery rate is much higher than the overall recovery rate of 54% realized by Jefferson County sewer warrant creditors, and slightly higher than our previous expectations," said analyst Christopher Coviello.
A GO interest rate swap that recovered nothing was also included in the overall recovery rate because it was on parity with the GOLT warrants.
The swap was terminated by JPMorgan on Sept. 4, 2008 with the county owing a $7.9 million termination fee, plus $1.8 million in accrued interest until the county exited bankruptcy. JPMorgan accepted $10 as a recovery for the swap in an agreement with the county.
"GOLT creditors realized higher recoveries than sewer creditors because Jefferson County's sewer system was far more overleveraged prior to the bankruptcy, relative to its ability to pay," said Coviello. "Jefferson County's general financial operations should be able to sustain the adjusted GOLT debt service schedule going forward.
"Conversely, the amount of sewer debt remains burdensome for the sewer system even after being cut," he said. "Jefferson County's ability to repay its post-bankruptcy sewer debt rests heavily on its ability to implement large future rate increases."
Moody's currently assigns Baa3 ratings and a stable outlook to Jefferson County's GO limited tax warrants. The sewer warrants were assigned Ca ratings during bankruptcy. Moody's was not asked to rate the sewer refunding warrants that were critical to the county's exit plan.
