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SEC Hearing on State of Municipal Market
July 18, 2011
The SEC chose the site of major municipal controversies for its public hearing on the State of the Municipal Market. The 7/29/11 hearing, which will take place in Jefferson County, Alabama, will address such critical topics as distressed communities, small issuers, disclosure, derivatives, and pre-trade price transparency. The hearing will take place from 8:30 AM to 4:00 p.m. The hearing also will be accessible at the SEC's website and archived for access afterward.
Following the hearings, Commission staff will put together a report concerning the information gained from the hearing - i.e., recommendations for any further action the SEC should pursue, such as rulemaking, changes to industry "best practices," or Congressional legislation.
Jefferson County, AL - Sewer Construction and Bond Swap Controversy. As described in Wikipedia, the county was involved in 2 extremely controversial undertakings: (i) a massive overhaul of the county-owned sewer system; (ii) a series of risky bond-swap agreements. Both have been scrutinized by federal prosecutors, with several former county officials convicted of bribery and corruption.
In 1995, Jefferson County entered into a consent decree with the Environmental Protection Agency regarding sewer overflows into the Cahaba River watershed. A total of $3.2 billion of new construction was subsequently contracted, both to comply with the consent decree and to expand the system to newly-developing areas and increase the number of ratepayers financing the construction. Several engineers, building contractors and commissioners have since been tried and convicted in Federal Court. On May 12, 2010, the U.S. Court of Appeals for the Eleventh Circuit affirmed the convictions in large part.
A series of controversial interest rate swaps, initiated in 2002 and 2003 by former Commission President Larry Langford (removed as the mayor of Birmingham after his conviction), were intended to lower interest payments, but have, in fact, had the opposite effect, increasing the county's indebtedness to the point that officials have issued formal statements doubting the county's ability to meet its financial obligations. The bond swaps are at the center of an investigation by the United States Securities and Exchange Commission.
In late February 2008 Standard & Poor's lowered their rating of Jefferson County bonds to "junk" status. The likelihood of the county filing for Chapter 9 bankruptcy protection has been debated in the press. In early March 2008, Moody's followed suit and indicated that it would also review the county's ability to meet other bond obligations.
On March 7, 2008, Jefferson County failed to post $184 million collateral as required under its sewer bond agreements, thereby moving into technical default.
For details on attending or listening in on the hearing, go to: [SEC PR 11-148, 7/15/11]
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