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Alabama city about to declare bankruptcy could be the first domino to fall that blows up the municipalities bond market

 
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07/17/2011 02:27 PM
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Alabama city about to declare bankruptcy could be the first domino to fall that blows up the municipalities bond market
[link to www.zerohedge.com]

Alabama's Jefferson Country, which has been teetering on the verge of bankruptcy for years courtesy of $3.2 billion in bonds related to its sewer system (a deal which has not made JP Morgan many friends south of the Mason Dixon line over the years), may soon decide to unleash the spring-loaded municipal bankruptcy dominoes. Reuters reports that "bankruptcy is still a "very strong possibility" for Alabama's Jefferson County, Governor Robert Bentley said on Saturday -- a move that could make for the largest municipal bankruptcy in U.S. history. "It is still on the table, and it's a very strong possibility," Bentley told Reuters during the National Governors Association meeting in Utah's Salt Lake City. The county is observing a "standstill period" to allow settlement talks with creditors, and this week it finalized a plan aimed at settling the debt to present to creditors." And while the municipal insolvency tsunami is merely a matter of time (it would be amusing to watch the army of Whitney bashers retract), the greatest irony would be if the Federal government were to file first, a move which as Moody's already noted would immediately send 7000 munis down the Chapter 9 rabbit hole as well, effectively bankrupting the entire $2.9 trillion municipal bond market overnight.

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