BRADENTON, Fla. - Jefferson County, Ala., commissioners yesterday approved their first forbearance agreement with creditors other than those involved with the county's troubled sewer warrants.

Commissioners authorized the commission president to sign a forbearance agreement until Sept. 30 on $120 million of Series 2001B general obligation variable-rate demand obligations with the Bank of New York Mellon as trustee, JPMorgan Chase Bank as swap counterparty and liquidity provider, and Bayerische Landesbank as liquidity provider. The county has a swap with JPMorgan on a notional amount of $120 million through 2011 on the Series 2001B debt.

Jefferson County already has forbearance agreements in effect through Sept. 30 with creditors concerning $3.2 billion of sewer warrants, which are mostly in variable- and auction-rate mode that saw interest rates soar and repayments accelerate in February after bond insurers were downgraded. The county also has about $5.2 billion of out-of-synch swaps covering the sewer debt.

The rising debt payments now threaten to force Jefferson - which has $4.2 billion of outstanding debt altogether - into the nation's largest municipal bankruptcy.

The county has unsuccessfully negotiated with creditors on a restructuring of the sewer debt, $2.8 billion of which is insured by Financial Guaranty Insurance Co. and Syncora Guarantee Inc., formerly XL Capital Assurance Inc.

FGIC, Syncora, and the Bank of New York Mellon, as trustee, filed a suit in federal court in Alabama last week asking a judge to appoint an independent receiver to take charge of the county's sewer system.

County commissioners yesterday also authorized their attorneys to "file a response asserting the county's actions, rights, and defenses" with regard to the suit filed by the bond insurers and trustee.

Bradley, Arant, Rose & White LLP represents Jefferson County. No other documents regarding the forbearance or the county's court response were made available.

Alabama Gov. Bob Riley has stepped in as a facilitator between the county and its creditors, but has not commented on the lawsuit filed last week. Under Riley's auspices, the county offered creditors a plan that only provided sewer system rate increases as repayment.

The lawsuit was filed last week after a majority of county commissioners rejected a counteroffer made by creditors that sought additional revenues along with sewer system rate hike to restructure the debt.

Nearly all the county's debt has been downgraded to below investment grade by rating agencies since the county's financial crisis began earlier this year.

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