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As Alabama's Jefferson County readies a workout proposal for its landmark $4.2 billion bankruptcy, officials yesterday announced an agreement with creditors JPMorgan Chase and Bayerische Landesbank covering $105 million of defaulted debt, Reuters reported yesterday. The deal, one of a series the county has reached since filing the biggest U.S. municipal bankruptcy in late 2011, covers the county's 2001b general obligation warrants and was expected to be approved on Thursday by the Jefferson County Commission. The agreement announced yesterday saves the county $2 million in fees and interest payments and shifts its variable rate payments on the bonds issued for infrastructure projects to a 4.9 percent fixed interest rate, officials said.

Moody's Investors Service said that many California cities will remain fiscally challenged over the next few years due to limits on raising revenues and demands for pensions and other spending, Reuters reported yesterday. The agency said that it downgraded the ratings on 27 cities' obligations and upgraded the general obligation ratings of two cities—San Francisco and Los Angeles—after reviewing all of the 95 California cities it assesses. The review was inspired by the bankruptcy filings of Stockton and San Bernardino, California, to understand the risk of future bankruptcy filings and the cities' current budget conditions, Moody's said.

Detroit Mayor Dave Bing, who has lost most of his authority to an emergency manager appointed by the state, said yesterday that he will not seek reelection, and accused Michigan, the media and political pundits of unfairly denigrating the city, Reuters reported yesterday. A former professional basketball player and steel company executive, Bing swept into office in 2009 with pledges to fix the city's ballooning deficit and restore neighborhoods decimated by crime, fires and residential flight. Detroit's long slide continued under his watch and the state of Michigan in March stepped in to appoint a bankruptcy lawyer, Kevyn Orr, to take over management of its finances. Orr on Monday said that Detroit is clearly insolvent and could face a possible bankruptcy if talks with labor unions and creditors do not make substantial progress on easing the city's cash crunch by the end of June.

Detroit may run out of cash next month and must cut long-term debt and retiree obligations, according to emergency financial manager Kevyn Orr’s preliminary plan to save Michigan’s largest city from bankruptcy, Bloomberg News reported yesterday. Orr’s report says the cost of $9.4 billion in bond, pension and other long-term liabilities is sapping the ability to provide public safety and transportation. He listed cutting debt principal, retiree benefits and jobs among his options. The report, required under a state law that gives Orr broad authority over city government, offers guidelines for cost cuts while giving few details. The document delineates Detroit’s financial situation, noting it is “insolvent on a cash basis.” Its accumulated deficit will top $380 million by June 30, and by then it will run out of cash unless it defers pension payments and other obligations, according to the plan.

Six weeks into his work as Detroit's emergency manager, former bankruptcy lawyer Kevyn Orr has found the city's finances in worse shape than expected, with long-term debt at $15 billion, $2 billion worse than figures disclosed before he took the job, Reuters reported yesterday. The city has set aside far less than expected for retiree healthcare benefits, too. A report from Michigan State University in March stated that Detroit has $4.9 billion of unfunded benefit liabilities. But Orr's review has found the shortfall actually is $5.7 billion, 16 percent higher than expected. Orr will address the city's finances today when he delivers a report to the state, and he is expected to report on Detroit's projected budget deficit and pension underfunding.

A lawyer for Alabama's Jefferson County said yesterday that the county expects to file a plan by late June to exit its landmark $4.2 billion municipal bankruptcy, Reuters reported yesterday. The 18-month-old case is a testing ground for how bondholders would fare when a local government debtor becomes insolvent. Jefferson County, whose exit plan appears certain to be opposed in court by some creditors, looks likely to become the first big local government since the 1930s to impose losses on bondholders. "We are looking at a largely consensual plan by late June, a hearing in August, voting 30 days after approval," lawyer Kenneth Klee told a bankruptcy judge yesterday.

California's public pension fund said yesterday that the bankrupt city of San Bernardino has a lot more cash than it had previously disclosed and more than enough money to pay off its debts to the retirement system, Reuters reported yesterday. San Bernardino declared bankruptcy on Aug. 1 last year and immediately suspended its $1.2 million biweekly payments to the California Public Employees' Retirement System (CalPERS). When it declared bankruptcy the city said that it was overwhelmed by pension debt and could barely make payroll, and did not have the cash to keep current on its payments to CalPERS, America's biggest public pension system with assets of $256 billion. But a CalPERS attorney asserted in a court hearing yesterday that the city had $26.8 million in the bank as of January of this year—far more than the $4.2 million that the city said that it had on hand. Last month, the city council voted to resume paying its employer contributions to CalPERS from this July—but will continue to renege on payments to other creditors, including the holders and insurers of $50 million in pension bonds.

Alabama's Jefferson County will brief a bankruptcy judge tomorrow on its progress toward exiting from bankruptcy, as the county appears likely to become the first big U.S. local government to impose losses on bondholders since the 1930s, Reuters reported yesterday. The case is seen as a testing ground for how bondholders fare when a local issuer breaks under excessive financial pressure. Jefferson County's $4.2 billion bankruptcy filing is the largest such municipal case in history, the result of debts taken on in a costly overhaul of the county's sewer system. Bankruptcy Judge Thomas Bennett is likely to set a schedule tomorrow for the county to file a workout plan with creditors. For some investors, this week's hearing may deliver clues as to which bondholders will take the worst loss. About $3.2 billion of the county's obligations are composed of the sewer and water bonds, which are expected to take the biggest haircut.

Moody's Investor Service said yesterday that the number of municipal bond defaults have increased since the financial crisis but it added that defaults remain few in number, Reuters reported yesterday. In 2012 there were five Moody's-rated defaults and 23 since the beginning of the recession in 2008, with an average of 4.6 defaults per years, up from 1.3 in the 1970-2007 period. The five Moody's rated defaults last year were KidsPeace (a nonprofit in Pa.); Wenatchee, Wash.; Stockton, Calif.; American Opportunity for Housing in Colinas, Texas; and Oakdale Sewer Enterprise in Calif.

For further analysis of municipal distress and chapter 9, pick up a copy of ABI's Municipalities in Peril: The ABI Guide to Chapter 9, Second Edition from the ABI Bookstore.

The U.S. Securities and Exchange Commission charged the Pennsylvania city of Harrisburg, the state's beleaguered capital, with securities fraud yesterday for allegedly releasing misleading public statements and financial information, Reuters reported yesterday. Harrisburg, which is under state receivership after its finances became mired by a scheme to upgrade a trash incinerator, agreed to settle the charges without admitting or denying the findings, the SEC said. The SEC said that it was the first time it has charged a municipality for making misleading statements outside of securities disclosure documents. Its investigation covered Harrisburg's budget, annual and mid-year financial statements, and a "State of the City" address. Alongside the charges, the SEC issued a report saying that public officials may be liable under federal securities laws for public statements made in the secondary market for municipal securities. According to the SEC, investors had to make trading decisions "based on inaccurate and stale information" about Harrisburg's financial condition during the trash burner crisis, largely because the city did not provide annual financial reports and other notices such as interest payment delinquencies.
http://newsandinsight.thomsonreuters.com/Bankruptcy/News/2013/05_-_May/…

To read the SEC’s press release, please click here: http://www.sec.gov/news/press/2013/2013-82.htm