2nd UPDATE: Jefferson County OKs 60-Day Debt Payment Extension
Friday May 30th, 2008 / 22h31
(Updates with additional information about payments and banks involved) By Michael Aneiro Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- The County Commission of Jefferson County, Ala., unanimously approved Friday yet another extension on two debt payments totaling aproximately $100 million. A spokeswoman for County Commissioner Bettye Fine Collins said the commission voted 5-0 Friday morning to approve a 60-day extension for obligations to banks and bond insurers relating to the County's sewer debt. As part of the extension, banks involved will receive a payment of $21.26 million toward the $850 million principal they are owed under the sewer bonds' standby warrant purchase agreements, according to Patrick Darby, an attorney at Bradley, Arant, Rose & White who represents the county. Jefferson County will pay half of that amount, with the other half coming from XL Capital Assurance, Inc., which insured some of the county's bond issuance. On Thursday, Jefferson County, commissioners had rejected a bank-recommended 60-day extension of a debt payment due Sunday, according to a report in the Birmingham News. JPMorgan Chase & Co. (JPM) had proposed the extension offer to the county. A $25 million fee for the additional time was cited by commissioners as the reason for the rejection. As a compromise, Darby said that JP Morgan had agreed to defer its portion of that payment, leaving the $21.26 million to be split among seven other banks involved: Banc of America Securities, Regents Bank, Bank of Nova Scotia, State Street Bank, Societe Generale, Lloyds TSB and Bank of New York. The deferral affects two payments - the was first due April 1, the second July 1 - under the standby purchase agreements governing $850 million in variable-rate sewer revenue debt, according to Darby. When the auction-rate securities market froze up earlier in the year, the banks honored their liquidity commitments under those agreements and bought the bonds back from bondholders, with the stipulation that the county then had to redeem the bonds early in the form of 16 quarterly principal payments. Darby noted that the county continues to pay interest on the bonds on a regular basis. Jefferson County has spent recent months trying to refinance billions of dollars in sewer debt to avoid a possible bankruptcy after its aggressive financing strategies and extensive use of interest-rate swaps backfired during the current credit crunch. In April, the county commission approved an agreement with banks that allowed it to delay until May 15 a $53 million payment, the first of its quarterly payment obligations. Then on May 15, the county commission approved forbearance agreements that extended that deadline by another 15 days. In March, the county missed a separate deadline for a $184 million collateral payment due to banks that stemmed from problems with interest-rate swaps contracts related to the county's sewer debt. Jefferson County has been in negotiations with banks - including Bank of America Corp. (BAC), Bear Stearns Cos. (BSC), JPMorgan Chase and Lehman Brothers Holdings Inc. (LEH) - that are counterparties to the county's swaps agreements as well as trustees for bondholders. If the county fails to renegotiate the debt and files for bankruptcy, it would be the largest municipal bankruptcy in U.S. history. -By Michael Aneiro; Dow Jones Newswires; 201 938 2189; michael.aneiro@dowjones.com
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