UPDATE 1-Alabama debt talks seen continuing

(Adds committee vote on bankruptcy, grafs 4,5,11 and 12, quotes; byline)

By Melinda Dickinson

BIRMINGHAM, Ala., Oct 6 (Reuters) - Alabama's governor, creditors and others trying to restructure Jefferson County's $3.2 billion of troubled debt will likely seek and get another standstill agreement, a county commissioner said on Monday.

The restructuring talks aimed at averting what could be the largest municipal bankruptcy filing in U.S. history are now being held under a forbearance agreement against default penalties that expires on Wednesday.

"The current forbearance expires Oct. 8. There will probably be another one granted because negotiations are still ongoing," Jefferson County Commissioner Bettye Fine Collins said at a news conference.

Before the news conference, two commissioners proposed and approved in committee a resolution calling for the county's lawyers to file a Chapter 9 municipal bankruptcy petition immediately in a federal court.

The resolution, which passed the county commission's three-member environment committee by a vote of two, without the vote of a known bankruptcy opponent, was scheduled for an Oct. 14 vote by the full, five-member commission. That vote was expected to fail.

"Drafting a resolution for bankruptcies is premature, and it will not pass the full commission," County Commissioner George Bowman said. "The governor is still in negotiations and is making some progress. He is still trying to close the gap."

The Jefferson County Commission last week approved a seven-day extension of a standstill agreement so Gov. Bob Riley, county officials, Wall Street creditors and others could keep bargaining. Details of the private talks are scarce but Riley has indicated they were making progress.

Collins and other commissioners said the talks were believed to have included a possible reduction in the county's $3.2 billion of sewer debt at the heart of the negotiations.

"I have only heard that Wall Street may be willing to write off approximately a billion dollars off the top of the debt," Collins said. "If lenders are truly considering this, and will change from variable rate to fixed rate, this is workable."

Two other commissioners told reporters that while they had not seen written proposals, they also had heard talk of a debt reduction. A spokeswoman for Riley was not immediately available to comment.

Collins, who is the key swing vote on the commission, said the resolution calling for immediate bankruptcy was wrongheaded.

"A resolution asking for the county to file bankruptcy right away is not based on reality," Collins said. "It is political posturing, and it can cloud the issue." (Writing and additional reporting by Michael Connor in Miami; Editing by Dan Grebler)