After three years of struggle to avoid bankruptcy filings, Alabama’s most populous county is at the crisis point with a $4 billion debt, $3 billion of which stems from a mandated sewer overhaul in the 1990s.
Repairs to the failing sewer system were financed in part with bonds tied to derivatives, with the bonds expected to be recouped by revenue from sewer users. The derivatives collapsed in 2008, and some of the officials involved in the bond program have been convicted on corruption charges, while the Securities and Exchange Commission required J.P. Morgan to make a $75 million settlement payment to the county.
But the county, which contains the city of Birmingham, cannot afford service on the debt that resulted, and after a court ruling cut off a significant portion of county revenues earlier this summer, the options are grim.
The county has already laid off almost a quarter of its employees. It reached the point of default at the end of June, and has since held off the filing only by first a 30-day and then, July 28th, an additional 7-day delay while creditors, the county and possibly the state of Alabama attempt to come to a deal without the guidance of the courts.
Alabama’s Governor Robert Bentley had previously left the county to fend for itself, but agreed at the end of July to guarantee new bonds issued to help buy off the debt. At the time of writing, it was unclear whether this deal would be accepted or whether bankruptcy proceedings would commence.
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