Alabama Declines Making Payments to JPMorgan Under Derivatives Deal

We could care less about derivative contracts. This was in so many words Alabama’s response today (Tuesday) to Wall Street powerhouse JPMorgan Chase (JPM). According to Bloomberg – the Alabama school construction authority has refused to make payments to JPMorgan due under a derivative deal until a federal court rules on the state’s lawsuit seeking to have the contract thrown out.

Alabama Finance Director James Main said the state won’t make or accept any payments under the interest-rate swap transaction until the status of the lawsuit is determined. The first exchange of payments under the contract is set for May 1.

“It would not be proper for me to authorize the use of taxpayer money for any payment due under the agreements until the court resolves those issues and determines our rights and obligations,” Main, also the authority’s secretary, said.

Alabama in October filed a lawsuit in U.S. District Court in Montgomery, Alabama, saying that the sale of swaption… wasn’t allowed under state law. The deal had been executed in connection with bonds sold by the Alabama Public School and College Authority.

Derivative deals between local governments and Wall Street backfired last year, leaving cities, states, and school districts with very high bond payments and large fees to break the contracts. [via Bloomberg]

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