Jefferson County, Alabama Staves Off Bankruptcy
Late last Friday, Jefferson County announced that it had entered into a standstill agreement with its lenders thus avoiding a threatened bankruptcy filing. The standstill agreement delays any immediate default on Jefferson County’s debt obligations until at least September 30, 2008 and permits negotiations with its lenders to continue.
Last week, Jefferson County presented a proposal to restructure its existing bond debt at lower fixed interest rates over a longer period. Jefferson County’s lenders apparently agreed to the standstill agreement in order to give themselves adequate time to consider the county’s proposal. Two of Jefferson County’s largest lenders, Bank of America and JP Morgan, declined to comment on the status of discussions.
Bank of America and JP Morgan, among various other Wall Street firms, have been accused of gross misconduct in connection with Jefferson County’s debt situation. Among other things, the Wall Street firms have been accused of selling an excessive amount of municipal derivative securities to Jefferson County and charging outrageous fees to the county in connection with such transactions.
Notwithstanding the “standstill agreement,” bankruptcy remains a very real possibility for Jefferson County. Jefferson County has been encouraged to file bankruptcy by the head of the Retirement Systems of Alabama, among others. A bankruptcy filing by Jefferson County would be the largest such filing since Orange County filed for bankruptcy in 1994.
Investors owning Jefferson County Bonds need to carefully monitor this situation. Regardless of how this situation resolves itself, such investors are likely to be adversely affected.
