Jeff Co on precipice of bankruptcy
The [Jefferson County] commission faces a 5 p.m. deadline today to extend another debt payment to its Wall Street creditors to restructure its $3.2 billion sewer debt or default.
If the county reneges, it would be the largest municipal bond default in U.S. history, eclipsing the Washington Public Power Supply System’s default on $2.25 billion in revenue bonds in 1983.
The article linked above highlights a report that offers dire predictions for the state:
But a report by a New Jersey company says a default would have “long-lasting negative consequences” for the state and its counties, cities and school districts. It also said it would harm Alabama’s “general business climate reputation.”
The report was recently prepared by Lamont Financial Services Corp. for one of the bond insurers in the Jefferson County case.
I’m not saying the bankruptcy will have no effect on other parts of the state (I don’t pretend to know about high finance), but I do question the motive of the report. It was paid for by a company that stands to lose a lot of money if Jeff Co defaults. They have considerable motivation to encourage the state to bail out the clowns around The Ham. A doomsday report about the impact on the state might do just that.
David Prather chimed in with a column comparing the relatively minor Huntsville metro jail fiasco with the colossal failure 90 miles to our south. I always say that Birmingham (and Jeff Co) is the best thing that ever happened to Huntsville politicos. B’ham is teeming with screwball politicians, which always make Huntsville’s politicians seem stately and wise by comparison. I wonder how many times Loretta Spencer and company have thanked a higher power for people like Larry Langford. I hardly think, though, that a massive financial disaster in a nearby area, especially one as habitually problematic as Jeff Co, should in any way diminish the magnitude of our own mess.
Bankruptcy is the route to go on this one. The financial biggies and “advisers” who advocated switching from fixed rate to adjustable rate bonds and other financial instruments really sold B’ham a load o’ crap. Don’t get me wrong, Birmingham has a huge responsibility in this, but these shysters who were paid millions obviously did not uphold their fiduciary responsibilities. As such, they should shoulder some of the blame. And since they don’t want to renegotiate the terms, B’ham should file and say tuff.
Check out what Philadelphia did about 4 years ago. Looks like this might be the template.
fiduciary responsibility, like self responsibility has been a foreign concept these past few years.
Hey Johnny Reb! Sorry, just had to say that.
A couple of key facts here: Municipalities must file for bankruptcy under Chapter 9, which does not allow for complete discharge of the debts. It’s somewhat similar to a Chapter 11 re-org.
Basically, Jeff Co might get some relief but would really just have a longer period of time to pay their bills.
I’m not a real bankruptcy expert but that’s my understanding of the situation.
PJ, you may be correct, but I have my doubts. If that were the case, the shysters wouldn’t be screeching so loudly about B’ham not filing. Follow the money – or those shrieking about it. 8-)
Oh no doubt the creditors lose money in Chap. 9 proceedings. They lose the time value of the deferred payments and presumably a principal and interest reduction as well. They’d no doubt just have AL taxpayers pay ‘em all their money up front. You’re right they would lose $. I was just refining the point by clarifying that this would would not be a Chap. 7 liquidation where most all the debts are discharged.
A liquidation… Now that would be fun. You, too, could own a little piece of Jefferson County.