Jefferson County on Monday turned over sewer accounts containing about $60 million in revenue to the court-appointed receiver for the sewer system, according to the Birmingham News.
The receiver, John Young, had asked the judge overseeing the receivership case recently to clarify his right to assume control of the accounts and incoming sewer revenues. Young was granted that authority last September when Circuit Judge Albert Johnson put the sewer system into receivership, but the county never turned over the accounts.
Johnson found that the county violated at least eight bond covenants, defaulted on the sewer warrants, and failed to pay $515.9 million of accelerated principal payments as part of his reasoning for putting the sewer system into receivership.
The receivership was sought by Bank of New York Mellon, trustee for $3.2 billion of variable- and auction-rate sewer warrants that the county defaulted on.
On Friday, Johnson ordered the county to immediately “take all necessary steps, including executing any required documentation or agreements, to provide signatory authority over all existing bank accounts related to the system and any other cash-equivalent assets to the receiver with all current signatories being removed.”
Along with having authority over the sewer accounts, Young also has rate-setting powers and recently proposed multiple years of hikes as part of a multi-faceted plan to pay the sewer system’s debt.
The county then threatened to file for bankruptcy. Shortly after that, the county and Young entered a 30-day standstill agreement, under which the county said it would not file for bankruptcy if Young halted pursuit of sewer rate increases.
The pact also allowed negotiations with creditors to continue over the restructuring of the defaulted sewer debt.
Young has also filed a claim with the county seeking the $75 million in the general fund that came from a 2009 agreement between JPMorgan and the Securities and Exchange Commission that settled securities fraud and other charges involving the sewer warrants and related interest-rate swaps. JPMorgan did not deny or admit the charges. The bank is the largest creditor of the sewer system debt.
It’s not clear how the loss of the $75 million would ultimately affect the county, which is suffering from a significant loss of general fund revenue because an Alabama court struck down an occupational tax earlier this year. The county said it depends on the $75 million for liquidity since it no longer has access to the capital markets.