Trustee in Alabama's bankrupcty demands accelerated payment

NEW YORK Thu Feb 7, 2013 1:48pm EST

NEW YORK Feb 7 (Reuters) - The creditors' trustee in Alabama's municipal bankruptcy asked the U.S. bankruptcy court to allow an accelerated payment on Jefferson County's debt.

The Bank of New York Mellon Corp, which collects the money from the county, last week said that some payments due on Feb. 1 to owners of $3.14 billion of sewer debt were suspended.

The bank said on Wednesday in its filing to the court that some bondholders did not agree to the trustee's application of funds to the regularly scheduled payments, so that the trustee did not have enough money to pay the principal.

Lawyers for creditors and Jefferson County, which filed for Chapter 9 bankruptcy in 2011 mainly because of overwhelming debt on its sewer system, are battling in court over sewer fee hikes that would go in part to service the sewer warrants.

County officials have said they continue to pay money collected from sewer system revenue to Bank of New York, which is responsible for distributing interest and principal payments to the owners of the defaulted sewer debt.

Tony Petelos, County Manager for Jefferson County told Reuters: "We will continue, as we have in the past, to make payments to the trustee."

A preliminary hearing on the motion will be held on March 7.

Owners of the debt include Wall Street banks, insurance companies and hedge funds.

The case is United States Bankruptcy Court for the Northern District of Alabama Southern division, in re: Jefferson County 11-05736-TBB9

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