Alabama's Jefferson County on Monday signed off on a stand-still agreement, clearing the way for creditors, the state's governor and other negotiators to hammer out a restructuring of $3.2 billion of county sewer debt and possibly avert bankruptcy.
A Chapter 9 municipal bankruptcy filing by Jefferson County, which is home to Alabama's most populous city, would be the biggest by a U.S. local government since Orange County, California, filed for protection in December 1994.
On Monday, the Jefferson County Commission voted by five to zero to accept a stand-still, or forbearance, agreement that will run until Sept. 30 and delay payments on debt and related interest-rate swaps.
The last forbearance against possible defaults by the county ran out Aug. 29, when the governor said creditors, insurers and others would consider a new proposal that appeared to include some elements already rejected during months of bargaining.
Last week, the Birmingham News reported the county wanted debt with lower rates and that a resolution would include no new taxes, no issuance fees and possible sewer fee hikes of as much as 2.85 percent a year.
In addition, interest-rate swap agreements that have aggravated the debts would be eliminated, according to the newspaper.
Officials have declined to comment on the newspaper report and said they expect a response soon from Wall Street on the latest restructuring proposal.
"I think this will be last forbearance," County Commissioner Bettye Fine Collins said in an interview after a special session of the council. "If Gov. Riley can't help bring negotiations to a favorable conclusion, Chapter 9 is the only option."
The county's $3.2 billion of sewer bonds is made up of about $2 billion of auction-rate securities, $850 million of variable-rate demand notes and the remainder in fixed-rate bonds, according to Standard & Poor's Ratings Services analysts. The county so far has only defaulted on the insured variable-rate debt, which is being held by liquidity providers, they said.
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