Jefferson County, Ala., files Chapter 9 plan; statement hearing Aug. 6

By Caroline Salls

Pittsburgh, July 1 - Jefferson County, Ala., filed its Chapter 9 plan of adjustment and related disclosure statement Sunday with the U.S. Bankruptcy Court for the Northern District of Alabama.

Through the plan, the county said it will achieve more than $1.3 billion of sewer debt claim concessions, which will substantially reduce the amount of sewer-related debt to $1.9 billion.

As part of plan compromises, the county said it has committed to increases in sewer rates designed to facilitate the issuance of new sewer warrants in an amount sufficient to make $1,835,000,000 of distributions to creditors and to ensure that the sewer system will generate enough funds to service debt, maintain operations, meet capital needs for the foreseeable future and preserve and improve services.

The county said issuance of the new sewer warrants does not require state legislation and will not involve any swap transactions, auction-rate securities or other financial transactions that it believes contributed to its financial difficulties and bankruptcy filing.

Commutation election

Jefferson County said the plan also includes a commutation election mechanism under which holders of sewer warrants can elect or be deemed to elect to commute, waive and forever release specified claims and rights, including all claims that could be asserted against sewer warrant insurers and any and all sewer released claims.

In exchange for making the commutation election, holders of sewer warrants will receive a higher cash recovery under the plan.

Under the terms of a financing plan approved by the County Commission on June 4, Jefferson County said it expects to generate and distribute $1,835,000,000 on account of class one claims from $1,963,000,000 in gross refinancing proceeds.

Financing plan

The financing plan involves the issuance of a mix of three different types of debt securities, including $1,418,000,000 in current interest paying warrants, $300 million in capital appreciation warrants and $175 million in convertible capital appreciation warrants.

The county said the financing plan calls for the receipt of about $71 million as original issue premium/discounts, as well as the use of roughly $96 million in cash available from the sewer system.

In addition to distributions to the holders of sewer claims under the plan, Jefferson County said the financing plan includes a $189 million deposit into a new debt service reserve fund, a $19 million underwriters discount, a $13 million put consideration and $2.5 million in issuance costs.

According to the disclosure statement, the financing plan depends on the commission enacting the approved rate structure, which calls for four years of 7.41% sewer system rate increases and 3.49% annual sewer system rate increases thereafter.

Creditor treatment

Treatment of creditors will include the following:

• Administrative claims and 503(b)(9) claims will be paid in full in cash;

• Holders of sewer warrant claims will choose between two distribution options, depending on whether or not they make the commutation election.

If they make the election, these creditors will receive cash from refinancing proceeds, remaining accumulated sewer revenues, sewer warrant indenture funds or a combination of those in an amount equal to 80% of the adjusted principal amount of each holder's warrants.

If they do not make the election, these creditors will receive cash equal to 65% of the adjusted principal amount of each holder's warrants.

Regardless of the option selected, each holder will receive a distribution in cash on account of any applicable reinstated sewer warrant principal and interest payments;

• Holders of sewer warrant insurers claims will receive a share of $165 million in cash from refinancing proceeds, remaining accumulated sewer revenues, sewer warrant indenture funds or a combination of those, as well as a separate cash distribution equal to a non-commutation true-up amount, payment in full in an amount equal to each insurer's covered tail risk and distributions of cash on account of the reinstated payments;

• The holder of JPMorgan sewer revenue indemnification claims and general obligation (GO) swap agreement claims will receive $10;

• Holders of sewer swap agreement claims and other standby sewer warrant claims will receive no distribution;

• Holders of school claims will retain their rights to school warrants, which will be repaid under the terms of modified indentures;

• Holders of Board of Education lease claims will retain all of their limited payment rights and recourse against the collateral securing obligations under the Board of Education lease indenture;

• Holders of other secured claims will either be paid in full in cash, receive the collateral securing the claims or have specified defaults cured;

• Holders of series 2001-B GO claims and standby GO warrant claims will receive a share of replacement 2001-B GO warrants and a share of $750,000 in cash distributions;

• Holders of GO policy claims will receive $503,046 for pre-bankruptcy interest paid under the GO insurance policies in April 2012 on April 1, 2014; $2.88 million for principal paid in April 2012 on April 1, 2014; $2.97 million for principal paid in April 2013 on April 1, 2015; and $1.5 million in settlement of fees and expenses claims;

• Holders of general unsecured claims will receive a distribution from a claims pool;

• The rights of holders of other impaired claims will remain unaltered; and

• The holders of subordinated claims will receive no distribution.

The disclosure statement hearing is scheduled for Aug. 6.

Jefferson County filed for bankruptcy on Nov. 9, 2011 under Chapter 9 case number 11-05763.

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