September 17, 2008

BIRMINGHAM, Ala. - Two Jefferson County bond insurers filed suit against the county Tuesday in connection with its $3.2 billion sewer debt crisis, according to a report from the Birmingham News.  The lawsuit asks a judge to appoint a receiver to manage the sewer system and consider a sewer rate increase for customers to begin a payback of the county's outstanding debt.

"Cleary the bond insurers have very little faith in the county's willingness to settle their debt and are trying to force the county's hand," Andreas Rauterkus, Ph.D., assistant professor of business at UAB said.

Rauterkus believes the suit could accelerate the county's move toward the largest municipal bankruptcy in U.S. history as the county looks to seek protection from a court appointed receiver.

"It seems that the bond insurers want a judge to say that the county is not putting forward a good faith effort [to settle its debts].  Now the county might just have to file for bankruptcy to counter the move," Rauterkus said.

The county continues negotiations with its creditors to settle its multi-billion dollar debt. If an agreement is reached that does not require the county to pay-off all its entire loan amounts, its bond insurers could be forced to pay-out the difference.

"The bond insurers are the ones who have the most to lose here and are taking some preventive measures to protect themselves," Rauterkus said.