July 30 Alabama's Jefferson County and Wall Street creditors are finally in talks on possible workout terms eight months after the biggest U.S. municipal bankruptcy was filed for $4.23 billion, lawyers said on Monday.
In Chapter 9 bankruptcy since Nov. 9, Jefferson County has the sole right to develop an adjustment plan that could include reductions of bonds and other debt. But U.S. Bankruptcy Judge Thomas Bennett must sign off on a plan.
Creditors on July 10 asked Bennett to set a Sept. 28 deadline for the county to submit a plan, saying the local government was dragging its heels on preparing a workout plan. .
However, the county claims that it may need longer to come out with a complete plan, partly because officials are working on possibly changing sewer-usage fees that cover operating costs and payments to the creditors.
"We are in concession negotiations related to what creditors can expect to get out of an adjustment plan," Kenneth Klee, the county's lead bankruptcy lawyer, said on Monday. "It will take many months to get this done. We won't know until October or November.
A lawyer for the creditors, speaking on a promise of confidentiality, confirmed creditors and the county were in talks but declined to discuss details.
"We are in fresh negotiations," said Tony Petelos, county manager. "We have spent a lot of time in meetings. We are meeting with many of the creditors."
A key dispute in the talks is likely the value of Jefferson County's publicly owned sewer system, which was the main driver of the county's bankruptcy. Creditors now hold sewer system debt warrants worth $3.14 billion.
But lawyers for Bank of New York Mellon, the indenture trustee for the creditors, said on Friday they expect the county to push creditors to accept a big reduction in the value of the system and their warrants.
"The trustee disputes that a valuation of the system or the net system revenue is appropriate or relevant in connection to the county's obligations," Larry Childs and other Bank of New York lawyers said in Friday's filing.
A hearing on the filing, which requests county financial documents and construction contracts related to the sewer system, was scheduled for Aug. 8 in Birmingham, Alabama.
Jefferson County in June lost a courtroom fight over the size of payments due to creditors from the sewer system's monthly revenues. Bennett ruled county officials had been improperly holding back about $54 million a year.
Home of Birmingham, Alabama's business hub, Jefferson County filed for bankruptcy after a tentative agreement with creditors unwound. That deal might have delivered a $1 billion reduction in the county's debts and possibly eased hundreds of government job cuts and reductions in public services.