Reuters: Bankruptcy News: Alabama county sees higher yields, size on bankruptcy-exit bond

Reuters: Bankruptcy News Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

50% off Print Subscription of USA Today Get the news delivered to your doorstep. Lock in the savings and receive USA Today for just $0.75 a day. From our sponsors

Alabama county sees higher yields, size on bankruptcy-exit bond Aug 12th 2013, 20:06 Mon Aug 12, 2013 4:06pm EDT * Top yields forecast at 7 percent * Bankrupt county lifts bond deal size * Moody's says higher rates raise risks By Michael Connor Aug 12 (Reuters) - Alabama's Jefferson County has hiked forecasts for yields it expects to pay and increased the planned size of a bond sale vital to its reorganization plan to pay off Wall Street creditors and exit America's second-largest municipal bankruptcy. According to documents revised after recent sharp increases in U.S. interest rates, which Jefferson County officials say could threaten their $4.2 billion negotiated plan of adjustment, the county now forecasts tax-free yields ranging from 4.5 percent to 7 percent on $1.98 billion of new debt. The county, whose finances were crippled by soured sewer system debt, corruption and a fall-off in revenue, had forecast in June that the late 2013 bond deals would total $1.89 billion and, depending on maturities as long as 40 years and type, yield between 3.5 percent and 6.75 percent. The bond monies would pay off sewer-system creditors owed $3.1 billion at about a 40 percent discount and fund capital spending on the county's sewer system. Another $1 billion of school and other county debt is also covered in the plan of adjustment. Contained in a disclosure document for creditors approved last week by a U.S. bankruptcy judge, the revisions also included a big increase, to $458.4 million from $174.5 million, in the amount of convertible capital appreciation bonds Jefferson County hopes to sell. The county also reduced by more than a third, to $179.8 million from $299.5 million, the amount of capital appreciation bonds. Critics of the proposed exit plan, which creditors will vote on in coming weeks, said the capital appreciation bonds were too costly and should not be issued. Most of the planned offering aimed at paying off current creditors will be current interest bonds worth $1.34 billion, according to the revised financing plan. Since the beginning of June, 10-year top rated yields on the Municipal Market Data scale rose by 64 basis points to end on Monday at 2.72 percent, from 2.08 percent on June 3. The rise in market interest rates, including a 43 basis point widening between 10-year AAA rated municipal bonds and 30-year, raises hurdles for Jefferson County's planned sale, as well as any new debt issuance that might come with a bankruptcy workout for Detroit, Moody's Investors Service analysts said. "Tethering bondholder recovery to market appetite for new debt from issuers in bankruptcy exposes the recovery to market risk, such as the spike in interest rates since May," Moody's analysts Silvio Zanardini and Dan Seymour said in a note. Using bond sales to pay off creditors is a strategy mostly untested in municipal bankruptcies and the higher rates Jefferson County is eyeing raise risks for investors, the analysts said. "It is unclear whether the county could execute this transaction and pay creditors under the currently proposed agreement," Zanardini and Seymour said. "Increases in tax-exempt yields may result in increased leverage on the new sewer warrants, which would increase the probability of a second default." Eclipsed only by Detroit, when the Michigan city filed on July 18 for municipal bankruptcy with more than $18 billion in liabilities, Jefferson County had sought protection from creditors in November 2011. A large majority of Jefferson County's creditors has already agreed to the negotiated plan, which promises to deliver only $1.835 billion to sewer-system warrant holders owed $3.078 billion, with bondholder losses on a scale not seen since the 1930s. Creditors will vote on the plan by Oct. 7. Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions