BRADENTON, Fla. – As the risk of loss appears to be increasing for investors holding bankrupt Jefferson County, Ala.’s defaulted sewer warrants, another major creditor has sold out.
The French bank Societe Generale told the 11th Circuit Court of Appeals in Atlanta that it wants to withdraw from what could be two precedent-setting appeals in the bankruptcy case involving Alabama’s largest county.
Societe Generale, which was holding bank warrants acquired pursuant to standby purchase agreements, said that it had transferred all of its rights in Jefferson County’s sewer revenue refunding warrants and “is no longer interested” in pursuing the appeals. The amount the bank sold, and to whom, was not divulged to the appellate court in filings submitted Monday and last Friday.
Three separate claims for Societe Generale in the amount of $117.9 million each had been filed as part of the county’s main Chapter 9 case in Birmingham. The bank previously sold off portions of its claims to Monticello LLC and Fundamental Partners LP, according to court records.
Societe Generale has asked the appellate court to allow it to withdraw from an appeal of federal Judge Thomas Bennett’s ruling last year that ousted a state-court appointed receiver that had been overseeing the county’s sewer system because of ongoing defaults on the debt. Bennett turned the sewer system back over to the county. Oral arguments are tentatively set for the week of July 22.
The bank also wants to opt out of a second appeal filed by Jefferson County earlier this year. The county is challenging whether Bennett erred in a ruling that protected special net revenues securing the sewer debt. The appellate court is also being asked to decide if the county can determine what costs qualify to be paid to operate the sewer system from revenues that also secure its debt.
Bank of New York Mellon, trustee for $3.14 billion of outstanding defaulted sewer warrants, stopped payment on all the debt earlier this year – including payments from insurance.
BNY Mellon has also filed a motion with the bankruptcy court seeking to accelerate payment on all the sewer debt. A preliminary hearing on the acceleration request is set for April 11.
As a result of the halt to payments on the sewer warrants, Standard & Poor’s dropped its rating to D from C, while Moody’s Investors Service downgraded its rating to Ca from Caa3 based on an expected increase in investor losses.
Assured Guaranty Municipal Corp. disagreed with BNY Mellon’s decision to stop all payments on the warrants, and said it would take steps to ensure that holders of AGM-insured sewer warrants continue to receive timely payments.