Last night, Jefferson County, AL delayed their decision for a month whether to declare bankruptcy or accept a settlement with their creditors and the state. At issue is $3.2 billion in debt, much of it for a sewer upgrade, that got dragged into the financial crash. The current deal would have creditors forgo a third of the debt in exchange for rate increases and the creation of an independent authotiry to run the sewer. County commissioners balked, though, arguing the deal relied on too many contingencies from the state–none of which are guaranteed–and took away any control at the county level. In short, it’s a mess, one that is costing the people of Jefferson County in increased rates and diminished services as the county struggled to find funding mechanisms to pay for the debt.
Yesterday, Reuters did a report summarizing all the bribery that went into the original sewer deal–and noting that JP Morgan hasn’t paid any reputational damage or loss of business for it, largely because it has blamed the deal on corrupt local officials.
JPMorgan Chase & Co. (JPM)’s Charles LeCroy said the key to landing bond deals in Jefferson County, Alabama, was finding out whom to pay off. In one example, that meant a $2.6 million payment to Bill Blount, a local banker and longtime friend of County Commissioner Larry Langford.
“It’s a lot of money, but in the end it’s worth it on a billion-dollar deal,” LeCroy told a colleague in 2003, according to a complaint filed by the Securities and Exchange Commission.
Just 21 months ago, JPMorgan agreed to a $722 million SEC settlement to end a case over secret payments to friends of Jefferson County commissioners. The financings arranged by JPMorgan, a package of floating-rate debt and derivatives, exposed taxpayers to the 2008 credit crisis and dealt a blow that may lead the county to approve the biggest U.S. municipal bankruptcy as soon as today.