Judge clears way for Alabama county's bankruptcy

Mon Mar 5, 2012 9:12am EST

A general view of the city of Birmingham, Alabama, August 9, 2011.   REUTERS/Marvin Gentry

A general view of the city of Birmingham, Alabama, August 9, 2011.

Credit: Reuters/Marvin Gentry

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(Reuters) - Alabama's Jefferson County can go ahead with its $4.23 billion bankruptcy case, the biggest ever by an American municipality, a federal judge ruled.

Overcoming arguments by creditors that the county was ineligible for bankruptcy because it had the wrong type of debt, U.S. Bankruptcy Judge Thomas Bennett issued a ruling late Sunday in Birmingham, Alabama, saying the complex case can go ahead.

"This is good news for the county," said David Carrington, president of the Jefferson County Commission that last year authorized the landmark bankruptcy filing.

It was unclear whether Bennett's ruling will spur workout negotiations between the county and creditors, but Carrington said the two sides will next face off at court hearings in April over the size of payments due creditors from the county's sewer system.

Home to Birmingham, a business hub and Alabama's biggest city, Jefferson County filed for bankruptcy on November 9 after a tentative agreement with creditors unwound. The county's finances had been savaged by massive sewer-system debt, political corruption and the loss of a vital local jobs tax.

Creditors such as JPMorgan Chase argued that Jefferson County was ineligible for a bankruptcy filing because the county had no bond debt as required by state law. Like most Alabama counties, Jefferson County only had warrants, a form of debt popular in the state since the 1930s that does not require direct voter approval.

Cases brought by other U.S. municipalities, such as Harrisburg, Pennsylvania, have been thrown out by other federal judges in recent months.

In a short, written ruling rejecting the creditors' arguments, Bennett said that Jefferson County "is insolvent, desires to effect a plan of adjustment of its debts and has negotiated in good faith."

(Reporting By Michael Connor in Miami; Editing by Chizu Nomiyama and Padraic Cassidy)

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