The impact of Jefferson County’s bankruptcy will reverberate for decades in Alabama and in the $3.7 trillion U.S. municipal bond market, according to an analysis by Bloomberg News on Friday. Creditors, including JPMorgan Chase & Co., agreed to forgive $1.4 billion of the county’s $3 billion sewer bonds. For the next 40 years, residents and businesses that already have some of the highest sewer rates in the country will pay back more in principal and interest than they owed before the bankruptcy, according to an analysis by Jim White, a Birmingham-based financial adviser who did an analysis for residents challenging the bankruptcy plan. Bankruptcy Judge Thomas Bennett dismissed objections to the county’s debt-reduction plan based on White’s analysis. The willingness of Alabama’s most populous county to enter bankruptcy, along with the losses imposed on creditors, may make bondholders of other distressed municipalities more willing to negotiate outside of court. Some hedge funds benefited by purchasing defaulted bonds for about 65 cents to 70 cents on the dollar from banks that dumped the debt and received about 80 cents on the dollar as part of the bankruptcy plan.
