Alabama County Nears $3.14 Billion Settlement, Avoids Historic Muni Bankruptcy

Alabama Alabama's massive sewer debt crisis is coming to a close. Commissioners of Jefferson County voted 4-1 on Friday to accept a term sheet with creditors, allowing it restructure and partially write off its $3.14 billion debt, the Birmingham News reported. The decision provides a framework for a formal deal and signals that -- for now -- the county will not file for Chapter 9 protection. Had it done so, it would have been the largest municipal bankruptcy in U.S. history.

The deal brings state lawmakers into the negotiations, and county commissioners say bankruptcy is still a possibility. A central tenet of the settlement increases sewer prices for residents over the next several years, including an average $3-a-month increase in citizens' wastewater bills in the first year of the rate hike. The settlement also outlines a program for low-income assistance.

More Muni Defaults Down the Road?

While municipal bankruptcies are relatively rare, analysts are divided on whether muni bonds are in danger of experiencing widespread defaults in the future. Since 1980, there have been just 254 municipal Chapter 9 filings, mostly by small special-tax districts and municipalities, according to James E. Spiotto, a bankruptcy expert and attorney with Chicago law firm Chapman and Cutler. One third of these have been dismissed, he says. But could that change?

Earlier this year, one banking analyst predicted that there would be as many as 100 municipal bankruptcies this year. Jamie Dimon, head of J.P. Morgan Chase & Co. (JPM), was also gloomy about muni markets, cautioning investors in January about the $2.9 trillion market. The bank is the third-largest underwriter of muni bonds, notes Bloomberg.

Is Muni Market Reform Needed?

While much of the financial disruption from Jefferson County's debt crisis has already been priced into the market, securities expert Joseph Fichera, a senior managing director and CEO at Saber Partners, told DailyFinance, the financial woes in Alabama underscore how problems in one part of the market can have system-wide effects.

A recent story by Bloomberg reported that 80% of all financings for muni bond deals are negotiated in private, allowing conflicts of interest to prevail.

Fichera said a lack of uniform and accepted accounting standards among issuers, along with fragmented regulation and enforcement in a diverse and complicated market -- with players as small as school districts and as large as multibillion-dollar capital improvement projects -- hurts both the good and the bad. Investors are exposed to more risk than they believe, costs go up, which causes raised taxes.

"Everyone gets tarred with the same brush," Fichera said.

"The presumption that the Jefferson County problem is everywhere or nowhere else is naivete," he said. "It shows there are a lot of underlying problems." The muni market isn't as transparent as other markets with greater regulation and more active oversight, he said. "It is an extreme example, but one that it should be a warning sign that there could be other problems elsewhere. Issuers and investors need to be more diligent."

Catherine New is a staff writer for DailyFinance. You can reach her at catherine.new@huffingtonpost.com.


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12 Comments

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Gerardine Folay

They mean it, they don’t want to talk about it or share in public. That’s what rich people getting busy with.

Do you want have a glimpse of it?
I’m sure you’ll get interested with this also, like mine.
Go to GO0GLE, type “BlueGoldHunt”, click the first site, and find out the surprise you have been looking for.

September 19 2011 at 4:42 AM Report abuse rate up rate down Reply
Gg

Look for double digit sales taxes soon.

September 18 2011 at 9:32 AM Report abuse +1 rate up rate down Reply
frank1946

Not to Worry ! Issue "Build America" Bonds...............they are susidized by the FEDERAL GOVERNMENT !

What could be better than that ? Please Pass the Bailouts, they are delicious !

September 17 2011 at 11:11 AM Report abuse +1 rate up rate down Reply
1 reply to frank1946's comment
savemycountry911

Whom will guarantee the government?

September 17 2011 at 9:12 PM Report abuse -1 rate up rate down Reply
Ed Avolio

Many, if not all, of the Birmingham’s problems would be gone if the congress had some desire to stop the flood of illegally made products being imported into the US. According to current US production laws, every product sold in the US from China, Mexico and other third world countries are illegally made. Congress prevents such domestic products to be sold in the US if made illegally, but allows such illegal products to be sold in the US if made offshore. This is why the US is being ruined economically and I don’t believe a single member of congress doesn’t know it.
Since consumer spending is 70% of the US Economy, and there are no products made in the US available in retail stores in the US, the economy will never recover. All we do with tax breaks and stimulus programs is put money in US pockets that, after groceries, rent and utilities, can only be spent on offshore products.

September 17 2011 at 9:55 AM Report abuse -1 rate up rate down Reply
1 reply to Ed Avolio's comment
warrenbent

No products made in the US available in retail stores?

LOL!

September 17 2011 at 10:39 AM Report abuse +1 rate up rate down Reply
wwchak

no more sweet home Alabama

September 17 2011 at 12:20 AM Report abuse +2 rate up rate down Reply
Tina

bwahahahahahahahahahahahahahaha

September 16 2011 at 7:45 PM Report abuse +1 rate up rate down Reply
Tina

but NOT Wells Fargo

What is in a COW Chip?
U have the Red Plague and British PIGG and NRA and Midget Oil and Wall Alley MM PIGGS and a Wells Fargo PIGG today joins us.
I work at the SEC and my name is DopeY
Federal Officials know that Wells Fargo has whistleblowers stating their Brokerage would not accept BUY BIDS after it CRASHED during flash crash and only After they made a healthy profit. That’s what was thrown out at SEC. Maybe something very soon out oN the Internet. Wells Fargo also has been confirmed to extort money from investors with CRIMINAL margin charges at their Brokerage. No doubt their Brokerage will be shut down and WE ARE talking 1 TO 10 billion in fines.
They don’t have that. HMMMMMMMMMM
So lets all sing because we like to HAVE FUN
And a 1 and a 2 (seventh inning stretch Cubs game)
Take Wells Fargo out to the Wood Chipper
Take them out for a fall
FINE THEM and SMOKE Them
With “BLUE” FED Attacks
They’ll CRACK like a ROACH on your walls

PIGGS – Satan Conjures U Wells fargo PIGGs.
U sue JP because U get get sued by US, but you have no case looking down in YOUR hole AS u FINED OUT.
Yep Homer – like about 10 billion buckaroooooooooos
HMMMMMMMMMMMMMMMMM.
Baaaaaaaaaaaaaaaankrupt bAAAAAAAAAAAAAAAANKRUPT

September 16 2011 at 7:45 PM Report abuse -2 rate up rate down Reply
Kevin

Unions are killing Alabama?? lol

September 16 2011 at 7:13 PM Report abuse -3 rate up rate down Reply
dabrownman

You give muni bond holders a haircut and they will make you pay a minimum 5% over the going rate next time or they can wait 7 years and only pay 2% over.

September 16 2011 at 4:36 PM Report abuse -2 rate up rate down Reply
Frank

Even without defaulting it will be harder and more expensive to issue new notes going forward. Don't know the specifics of the restructure and write-off's, but I'm sure many current bond holders will taking some kind of hit through interest rate reductionsand maybe pro-rated amounts on maturing bonds. They might be the tip of the iceberg as municipalities at all levels are seeing dramatic revenue reductions.

September 16 2011 at 3:37 PM Report abuse +1 rate up rate down Reply