Jefferson County's Sewer Woes and the Rest of the Muni Market: Reuters MuniLand's Cate Long

The ambitious sewer construction project that was initiated back in 1995--and really got going in 2002 and 2003 with the high-flying, fraudulent swaps-based deals to fund it--is barreling toward a resolution after years of financial pain for Jefferson County, Alabama. Luke and I spoke with Cate Long, who writes an indispensable blog over at Reuters MuniLand, on Benzinga Radio this afternoon to get some color on the negotiations. The floating interest rate swaps previously sold to the county by a group of investment banks led by JP Morgan blew up as part of the 2008 financial crisis. Around the same time, the fraud surrounding the bad deals came to light, public officials went to jail, and banks were forced into a settlement with the SEC for a paltry sum. Nevertheless, Jefferson County taxpayers were left holding the bag--a bag filled with billions of dollars of debt. That money has proven to be too much to bear, and this week, talks between the county and its Wall Street creditors accelerated. One option on the table is bankruptcy. Many draw comparisons to the sovereign debt crisis in Greece and point to bankruptcy as the choice placing the least burden on the shoulders of Jefferson County's taxpayers. The county this week moved to retain attorney Kenneth Klee, a leading expert on Chapter 9 municipal bankruptcies, in the event that they choose to go down that road. Cate thinks it's a great move on the part of the county because it gives them some additional firepower in the negotiations, but she doesn't see bankruptcy as the likely outcome. Both sides want to do a deal. The county is doing everything it can to avoid the stigma and the drawn out process of bankruptcy. JP Morgan, while ultimately having to take a significant haircut on the debt, will be able to recoup a good amount of cash and move on from what has been a nasty PR episode, according to Cate. Cate also gave us some insight on what this means for the rest of the muni market and how a U.S. debt downgrade might affect "muniland." We talked a bit about some other big stories she expects to come into focus in the space once the Jefferson County story is resolved in the coming days. Check out the audio to hear the full conversation. find us on Twitter @matthewboesler, @lukelavanway, @BenzingaRadio, @Benzinga