By Associated Press
Montgomery AL – With Alabama's most populous county and bond insurers at odds in court, and talks failing to produce a deal on a $3.2 billion debt crisis, Gov. Bob Riley expressed doubts the county can avoid filing the largest municipal bankruptcy in U.S. history.
Negotiations continued, but there was no word Friday of a breakthrough. County officials are considering whether to file for Chapter 9 bankruptcy if there isn't a settlement by Tuesday, when an agreement with lenders expires.
Riley said his hopes for an agreement were fading.
"I'm probably less optimistic now because we've been doing this long enough that if people were going to make the necessary concessions, it seems like they would have been made by now," Riley, who was asked to intervene by county officials, told The Birmingham News in an interview Thursday night.
The county is on the brink of filing bankruptcy over its $3.2 billion sewer debt because interest expenses rose sharply this year after credit ratings on bond insurers were downgraded amid subprime mortgage troubles.
"We have to make every effort we can to avoid bankruptcy. And I think if you look back over the last few months, we have made every effort," Riley said.
Meanwhile, the county responded to a federal lawsuit brought by two New York bond insurers, claiming the firms were negligent, breached their duties and committed fraud, causing the financial crisis that threatens to bankrupt the county.
The county is seeking more than $100 million plus interest and costs from bond insurers Financial Guaranty Insurance Corp. and Syncora Guarantee, Inc. Together, the companies back $2.8 billion of the county's $3.2 billion sewer debt.
Financial Guaranty Insurance and Syncora Guarantee previously filed suit asking a judge to place the county's sewer system under the control of a receiver who would have the power to order rate hikes and ensure the safety of the system for residents.
The county, under a consent decree, agreed to fix the sewer system to settle a lawsuit over pollution being dumped into streams. Initially expected to cost $1 billion, the cost of the project more than tripled, then payment rates ballooned.