Alabama Bound: Here We Go

I first mentioned Jefferson County, Alabama over three years ago as the state's most populous county (and home of its largest city, Birmingham) has been on the brink of municipal bankruptcy for years now as it was devastated by the credit default swap shell game.  In the meantime to stay afloat, the county fought and lost a tax battle that forced it to suspend a number of services and then Republicans ravaged the tax system with a regressive occupation tax and the Democratic mayor was indicted on fraud to the tune of billions.

It's taken a while, but the county has finally declared Chapter 9 bankruptcy this week.

Jefferson County, Alabama, filed the biggest U.S. municipal bankruptcy after an agreement among elected officials and investors to refinance $3.1 billion in sewer bonds fell apart.

The county, home to Birmingham, the state’s most-populous city, listed assets and debt of more than $1 billion in Chapter 9 papers filed today in U.S. Bankruptcy Court in Birmingham.

The county’s bankruptcy attorney, Kenneth Klee, said the filing was necessary because talks with creditors and the receiver in charge of the sewer system built by the bonds broke down.

“There was an impasse reached,” Klee said in an interview today. “None of the creditors -- zero -- signed up to the deal that we have been negotiating for six weeks.”

The county’s major creditors, including JPMorgan Chase & Co. (JPM), signed tentative agreements in September to reorganize the sewer debt to avoid bankruptcy. County officials said at the time that JPMorgan would provide $750 million of about $1.1 billion in concessions.

By October, the tentative deal began to fall apart as disagreements emerged among Jefferson County’s 25 state lawmakers. The deal required action by the state Legislature to help the county close its budget deficit, create an independent sewer authority and give state moral-obligation backing to new sewer debt. 

Yeah, there's the irony:  the big losers here are the banks who have to take a haircut on their losses.  But Jefferson County is not going to be alone, folks.  This was years in the making, and more of this will be coming.  Count on it.