Birmingham, Ala., July 23 (Reuters) - Alabama’s Jefferson County on Tuesday voted to raise sewer tariffs by 7.89 percent, more than the county’s bankruptcy plan had projected, and approved a deal to pay Lehman Brothers 75 cents on the dollar to settle missed payments on interest rate swaps.
Jefferson County in June filed a comprehensive negotiated plan to exit its $4.2 billion bankruptcy, the result of debts taken on in a costly overhaul and expansion of the county’s sewer system.
The plan delivers the first big losses to municipal bondholders since the 1930s and is the latest chapter in a saga of corruption and mismanagement of public finances that forced Jefferson County, Alabama’s most populous county, to seek protection from creditors in November 2011.
Until Detroit filed for bankruptcy last week, Jefferson County had ranked as the largest municipal bankruptcy in U.S. history.
With unseasonably cold and wet weather resulting in lower water usage, sewer revenues are down 5 percent, an unusual circumstance that Jefferson County expects to compensate with rate hikes, Eric Rothstein, a sewer rate consultant, told the Jefferson County Commission at its meeting on Tuesday.
Monthly sewer rates will rise to a fixed rate of $15 per individual user, effective this the fall, up from the current $10 month. From 2014, the rates will be hiked by 7.89 percent per year over four years. The bankruptcy exit plan had projected rate hikes of 7.41 percent.
“In order to sustain the deal that we cut, it is necessary for us to certify that the plan this commission adopted can go forth in good faith,” Kenneth Klee, a bankruptcy lawyer for the county, said.
“According to sewer data we received that is not true. We could go back to creditors or we could amend the financing plan to let them know this deal could work. We choose to amend,” Klee said.
The commission approved the rate increases unanimously.
Under the deal with Lehman, Jefferson County will pay $1.25 million, or 75 cents on the dollar, on $1.65 million in missed payments on interest rate swaps for the sewer system. That is less than the 80 cents on the dollar that will be paid to other sewer creditors.
As part of the deal, Lehman will also forgive a $100 million termination fee.