* Creditor lawyer sees exit schedule as unrealistic
* County says consensual plan better but can do 'cram down'
* 'Cram down' plan would spur litigation-county lawyer
By Melinda Dickinson and Sherrel Stewart
BIRMINGHAM, Ala., May 9 Alabama's Jefferson
County expects to file a plan by late June to exit its landmark
$4.2 billion municipal bankruptcy, a lawyer for the county said
The 18-month-old case is a testing ground for how
bondholders fare when a local government debtor becomes
insolvent. Jefferson County, whose exit plan appears certain to
be opposed in court by some creditors, looks likely to become
the first big local government since the 1930s to impose losses
"We are looking at a largely consensual plan by late June, a
hearing in August, voting 30 days after approval," Kenneth Klee
told a U.S. bankruptcy judge on Thursday.
Jefferson County is the largest local government in the
United States to have ever filed for bankruptcy mainly because
of debts taken on for a costly overhaul of its sewer system. It
hopes to see its plan confirmed in October or November and to
see it put into effect by year's end, Klee said.
"I believe we have made substantial progress toward a
consensual agreement," Klee told Bankruptcy Judge Thomas
But creditor lawyer David Lemke, representing Bank of New
York Mellon, which is not among creditors such as JPMorgan
Chase, hedge funds and mono line insurers bargaining with the
county, told the judge the schedule was unlikely to be met.
Klee gave no details of terms that may be part of the
county's plan of adjustment, but told the court the county aimed
to file a consensual plan with terms largely negotiated with
"We have a consensual, or largely consensual, plan, that
will fulfill the objectives that we sought to reach from the
first day," Klee said. "If we don't, then county will file a non
consensual, or 'cram down,' plan in the same time frame."
A FAIR PLAN
U.S. law gives Jefferson County, among a handful of
governments in municipal bankruptcy, exclusive rights to develop
and present a plan to adjust its debts and fund local government
Such a plan must be fair and equitable and be approved by
Bennett but can contain principal cuts and other terms opposed
by some creditors. A consensual plan containing terms negotiated
by many creditors would have a better chance of approval.
Klee said a 'cram down' plan would likely involve further
legal battles in a case already costing the cash-strapped county
about $2 million a month in fees and delay Jefferson County's
exit from bankruptcy.
The head of the Jefferson County Commission has repeatedly
said he expects savings of about $1 billion when the county,
which is the most populous in Alabama, exits bankruptcy. Some
investors expect bondholders to take losses.
The county's proposed timetable may be too ambitious,
particularly because the legal claims to payoffs from the county
held by creditors and their financial interests vary a great
deal, according to John Mousseau, portfolio manager and vice
president at Cumberland Advisors Inc.
"The judge looks at all that and says each has a way to go,"
Mousseau said. "If you are a senior-lien bondholder, why would
you want to take a haircut?"
Klee said the county may as early as next week approve an
agreement with owners of some debt but that the talks over $3.2
billion of sewer debt were "very complex" and include JPMorgan
Chase, hedge funds and mono line insurers.
"We are extremely close with JPMorgan in resolving all our
differences. We are extremely close with the hedge funds in
resolving all our differences. And we are close with the mono
line insurers; we have a ways to go there," Klee said.
Klee said managers at one creditor, Bayerische Landesbank,
were to decide soon on a deal to settle claims against Jefferson
County. Bayerische Landesbank holds more than $105 million of
the county's debt, Klee said.
Jefferson County already has in place deals with creditors
Ambac Assurance Corp and Depfa Bank Plc on some claims and has
slashed spending by laying off workers, closing some operations
and reducing services since 2011.