Wall Street to cheer Judge Bennett sewer ruling, bond analyst says

U.S. Bankruptcy Judge Thomas Bennett  04.09.12U.S. Bankruptcy Judge Thomas Bennett ruled today that Jefferson County sewer revenues cannot be used to establish reserve accounts for capital expenditures or legal fees. (The Birmingham News / Michelle Campbell)BIRMINGHAM, Alabama — The ruling today on the use of surplus Jefferson County sewer revenues will be applauded by Wall Street, a top bond analyst said.

Matt Fabian is a managing director at Massachusetts-based Municipal Market Advisors, which counsels bond buyers and sellers on strategies and tactics.

He said in an interview that investors will approve of the ruling today by U.S. Bankruptcy Judge Thomas Bennett that the county cannot use sewer system revenues to establish reserve accounts for capital expenditures and other non-operating expenses.

He said such a ruling agrees with the position of the investors who lent $3.2 billion for the expansion and repair of the decrepit sewer system starting in 1997, that the revenues after operating expenses belong to them.

“It is consistent with the market’s understanding of how revenues should be spent,” Fabian said. “So it’s a bit of a relief for investors and for other local issuers who might want to come to market who now won’t face as much of a borrowing penalty as otherwise.”

U.S. Bankruptcy Judge Thomas Bennett said in a 43-page memorandum
opinion today that sewer system operating expenses as defined by the contract between the county and lenders doesn’t provide for a
reserve fund for for depreciation, amortization, or future expenditures, or for an
estimate for professional fees and expenses.

The decision appears to be a blow for the county, which had argued that reserving money for attorney fees and capital expenditures
a fund for big repairs and new projects — is allowed by both the legal
terms of the bond agreements and the judge’s rulings since the
bankruptcy filing.

County officials said the ruling means the system will continue to be maintained.

“Among other things, we note that the court’s ruling maintains the
status quo . . . the county can continue to operate the system, and the
county’s sewer professionals have the resources that need to continue
providing vital services to the community,” Commission President David
Carrington said in a prepared statement.

The trustee for the creditors has asked in a filing earlier this year
for a declaratory judgment stating that net sewer revenues belong to
the bondholders. Creditors also asked that fees paid to county attorneys
be deducted from the county’s end, not the creditors.

Efforts to reach the creditors’ lawyers for comment were unsuccessful.

Bennett wrote in his memorandum opinion today that the money
remaining in the sewer revenue account following payment of operating
expenses that were incurred in the current or prior months are to be
remitted to creditors “without withholding of any monies for
depreciation, amortization, reserves, or estimated expenditures that are
the subject of this litigation.”

Jefferson County filed for the largest Chapter 9 municipal bankruptcy
in U.S. history in November, citing $3.14 billion owed to bondholders
who lent money to expand and repair the decrepit sewer system starting
in 1997.

Article source: http://blog.al.com/businessnews/2012/06/wall_street_to_cheer_judge_ben.html