US municipal bonds may tip cities into bankruptcy
• Jefferson County, Alabama, poised to default on loans
• Downgrade threat to Maryland, New Mexico, South Carolina, Tennessee and Virginia
By Phillip Inman
Thursday 28 July 2011
Alabama’s Jefferson County was last night poised to become the largest municipal bankruptcy in US history after a three-year battle with creditors over a $3.2bn (£1.9bn) loan.
The local authority, possibly the first of many US counties and cities to default on loans, convened a special session to consider terms for a settlement or a 30-day extension to talks. Councillors were also asked to assess whether bankruptcy is the best option after a failure to find a settlement since 2008.
Jefferson county, home to Alabama’s largest city, Birmingham, has found itself teetering on the brink after talks broke down with creditors, including the investment bank JP Morgan Chase. A previous extension to talks on the $3.2bn sewer bond expires tomorrow.
Jefferson heads a list of municipal borrowers that could find themselves in deep financial trouble in the next few years.