Alabama county debt deal plan ready for creditors

BIRMINGHAM, Alabama (Reuters) - Alabama's Jefferson County has finalized a plan to present to creditors aimed at settling its $3.2 billion sewer bond debt and avoiding the largest municipal bankruptcy in U.S. history.

The county aims to settle a chronic bond debt that escalated in the mid-2000s when interest on variable- and auction-rate swaps from a refinancing of an upgrade to its sewer system spiraled in 2008.

Bond markets are watching attempts to settle the debt closely because any possible default would impact the municipal market.

County Commission President David Carrington said in a local television interview on Thursday the plan includes repayment at a fixed rate over a fixed term and said it would be backed by the state's good name and credit.

"There will be no increasing rates. It will be like a fixed-rate mortgage," Carrington told WBRC TV in Birmingham, the state's largest city, which is located in Jefferson County and is a center of economic activity. "We will know exactly how much we are going to pay."

County commissioners had previously said the options they were looking at included debt exchange, refinancing and a fixed term.

Double-digit sewer rate increases are not part of the plan, Carrington said, in apparent contradiction of court-appointed water receiver John Young, who announced in June a 25 percent sewer rate hike to start in September.

"There needs to be some rate increase due to capital expenditures and the cost associated with maintenance," said Carrington. "Double-digit increases are unacceptable and won't be tolerated."

Young's rate hike drew immediate opposition from the five-member county commission and public, and he later said he would postpone it as part of a 30-day standstill for talks with creditors due to expire on July 29.

Young was appointed last year by a court to supervise the finances and operation of the sewer system on behalf of Bank of New York Mellon, the trustees for the creditors, who include JP Morgan Chase.

Carrington said Young was due to present the plan to creditors and hoped for progress by July 29.

"We're closer to a resolution today than we've been since 2008," said Carrington in the interview.

(Additional reporting by Melinda Dickinson; Writing by Matthew Bigg; Editing by Leslie Adler)

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