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Alabama broke on bonds, worst in us history mmmmmmmmmm where does petey plan to get that money lmao!!

http://finance.yahoo.com/banking-budgeting/article/113207/facing-hit-over-debt-alabama-wsj?mod=bb-budgeting%20&sec=topStories&pos=5&asset=&ccode=Facing a Hit Over Debt in Alabama




by Michael Corkery
Wednesday, July 27, 2011


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In a move to avoid the largest municipal bankruptcy in U.S. history, holders of more than $3 billion in debt issued by Jefferson County, Ala., are working on a rescue that would leave them with steep losses.

The offer calls for bondholders to forgive about $1 billion of the $3.14 billion in sewer debt owed by Alabama's most populous county, which has about 665,000 residents, a person familiar with the matter said.

Banks, hedge funds and mom-and-pop investors that own the sewer bonds are scrambling to agree on concessions before a Thursday meeting, where officials in Jefferson County, which includes Birmingham, might decide to file for bankruptcy.

As of late Tuesday, the situation remained fluid, and it was possible the last-ditch offer would fall apart.

John S. Young, a court-appointed receiver who is participating in the talks, said bondholders still "have a way to go."

The deal being worked on also includes money that would be set aside to help struggling Jefferson County residents pay their sewer bills, a person familiar with the matter said.

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If bondholders walk away from about a third of what they are owed by Jefferson County, it would be one of the biggest "haircuts" ever in the U.S. municipal-bond market. County commissioners previously asked for $1.3 billion in concessions, demanding a response by this week. Jefferson County Commissioner Jimmie Stephens said Tuesday afternoon that officials are likely to put off the bankruptcy-filing discussion if bondholders go through with the $1 billion offer.

The county's financial fate has been up in the air for about three years. The sewer debt involved a complex series of interest-rate swaps and other terms that severely strained Jefferson County's bottom line. A handful of county officials have been convicted of wrongdoing related to the mess. J.P. Morgan Chase & Co. (NYSE: JPM - News) paid $75 million in penalties and fees and agreed to forfeit an additional $647 million in termination fees to settle federal securities charges related to the sewer debt. The bank settled without admitting or denying the SEC allegations related to the Alabama debt.

Because of its role in arranging the deal, J.P. Morgan has offered to absorb the biggest loss of any bondholder as part of a $1 billion offer, according to a person familiar with the situation. Bondholders also want insurers that back payments on some of the bonds, including Syncora Holdings Ltd. (SYCRF - News) and Financial Guaranty Insurance Co., to make good on at least some of their promised payouts. A Syncora spokesman declined to comment, and FGIC officials couldn't be reached.

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A spokesman for New York state's insurance regulator, which is part of the Jefferson County talks because it oversees the insurers, declined to comment Tuesday.

Meanwhile, hedge funds that bought the county's bonds on the cheap are angling in the talks for the biggest possible profit. Individual investors are expected to get all their money back, according to Mr. Young.

On-again, off-again negotiations among bondholders, county officials, Alabama officials and other parties have revved up in recent weeks. A "standstill" period aimed at reaching a deal expires Friday, and county officials have said they want to decide once and for all whether to file for bankruptcy. "This issue has affected our state economy and our local economy," said Mr. Stephens. "It's time we brought this to resolution."

If bondholders agree to reduce the outstanding principal on Jefferson County's sewer debt, the county would seek to refinance debt it still owes into a lower interest rate. But that may not be enough to reverse huge increases in sewer bills forced by the crisis, Mr. Stephens said.

Any deal hinges on whether Alabama officials agree to guarantee the new debt and pledge the state's "moral obligation" to pay bond investors in case Jefferson County can't do so. Alabama's legislature would have to approve such a guarantee.

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A spokeswoman for Alabama Gov. Robert Bentley, a Republican, said his office, which is involved in the rescue talks, has "received some information from the creditors, but we're waiting for more." The delicate discussions are being coordinated by Mr. Young, the receiver, who is a civil engineer by training. He is working the phones in Birmingham, Alabama's capital city of Montgomery and New York.

Talks were expected to last through the night. Earlier Tuesday, Jefferson County officials took another step toward a potential bankruptcy filing, hiring bankruptcy lawyer Kenneth Klee of Los Angeles firm Klee, Tuchin, Bogdanoff & Stern LLP. Mr. Klee represented Orange County, Calif., in the last major U.S. municipal bankruptcy, in 1994.

Write to Michael Corkery at [e-mail]