Participants in the $3.7 trillion municipal bond market that finances schools, roads and other projects are likely watching in dismay as some of their investments go down the sewer, literally.
The costly sewage system revamp in Jefferson County, Ala., looks like a raw deal for muni debt holders who, for the first time, according to Bloomberg, will be forced to accept a loss of principal.
The Southern state's largest county, encompassing the Birmingham metropolitan area, filed a 101-page consensus-based plan in U.S. Bankruptcy Court on Sunday that includes a cut of $1.2 billion in principal payments to holders of sewer-related debt.
The Birmingham Business Journal quotes David Carrington of the Jefferson County Commission, which approved the plan, as saying the result reflects a hard-fought consensus between the county and its creditors:
"All of the various sewer creditors (the monoline insurance companies, the liquidity banks, the hedge funds, and particularly JPMorgan) will be getting far less than a full recovery. Every part of the settlement is the product of very intense, hard-fought, arms-length negotiations."
Should the plan win court approval, which Carrington considers likely following long negotiations since the county's recording-setting $4.2 billion insolvency filing, the county will refinance its sewer debt, raise sewer fees on ratepayers and exit bankruptcy.
Not all participants will receive the same haircut. Hedge funds, who will participate in refinancing the county's debt, will collect more than 80 cents on the dollar, Bloomberg reports, while JPMorgan will collect just $375 million of the $1.84 billion it is owed.
