BIRMINGHAM, Ala. (Melinda Dickinson and Matthew Bigg) - Alabama's Jefferson County voted Friday to accept a provisional deal to settle its $3.14 billion sewer bond debt and avoid what would be the largest municipal bankruptcy in U.S. history.
The deal marks a turning point for Alabama's most populous county which since 2008 has teetered on the edge of a bankruptcy that would have surpassed that filed by Orange County, California, in 1994.
The County Commission voted 4-1 in executive session to accept the main terms of a deal it had previously thrashed out with creditors, who include JPMorgan Chase & Co.
But fulfilling the deal's terms depends in part on the state legislature and the county reserved the right to file for bankruptcy under certain circumstances, commissioners said.
``Remember that this is only a framework. We have to take this framework and create a definitive document,'' commission president David Carrington told reporters after the vote.
``Every creditor has to sign off, then the county has to vote to accept it,'' Carrington said, in a reference to divisions among creditors that have played a role in hindering a definitive resolution of the debt.
In a sign of continued uncertainty, commissioners Joe Knight and Jimmie Stephens voted for the framework deal but later said they were unhappy with its terms and wanted more concessions from creditors.
Even so, Friday's vote reduces the chances that the biggest county in Alabama will rattle the $3.7 trillion U.S. municipal debt market and damage the state's reputation for fiscal health with a major Chapter 9 filing.
Alabama Governor Robert Bentley became increasingly involved in recent talks, putting pressure on commissioners to delay a bankruptcy decision until they secured better terms.
``It may have been easier for the Commission to file for bankruptcy but this settlement will result in a much better deal for the ratepayers and citizens of Jefferson County and for the state,'' Bentley said in a statement.
TERMS OF THE DEAL
The county's debt escalated in the mid-2000s through a series of interest and auction rate bond deals as it sought to refinance an upgrade to its sewer system.
Some 22 people have been convicted for corruption over the refinancing and the U.S. Securities and Exchange Commission sanctioned JPMorgan for its role.
Under the approved deal, creditors agreed to reduce the total debt from $3.14 billion to approximately $2.05 billion.
The county will also raise sewer rates by no more than 8.2 percent for each of the first three years beginning in November. Further annual increases of 3.25 percent were anticipated.
That provision was in itself controversial. Residents reacted angrily in June when the court-appointed financial manager of the sewer system, John Young, said rates would be raised by 25 percent. He later shelved that increase.
Commissioner George Bowman cast the sole vote against the deal saying it would consign county residents, many of whom are on low incomes, to annual rate increases for years to come.
``I understand the needs of the county for revenue to fix the general fund and all of the other funds that we have but my main consideration is the impact to the ratepayers that I represent,'' he told the commission.
Other terms of the framework deal include:
-- A 40-year repayment term with 1.25 times debt service coverage
-- 10 percent Debt Service Reserve, half of which is to be funded by a surety bond provided by Assured Guaranty and up to $1.0 billion of bond insurance.
-- An assistance program for low-income residents
But a key -- and potentially deal-breaking -- provision remains the creation by the Alabama state legislature of an independent public company.
This General Utilities Services Corporation would serve as the issuer of the refinancing debt. But there is no guarantee that the proposed public company will be approved by a Republican-controlled legislature which earlier this year voted down a bill to establish a new tax for the county.
Young called the agreement a ``critical first step''. There was no immediate comment from creditor institutions. (Editing by Pascal Fletcher and Chizu Nomiyama)
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