Feb 6 Bank of New York Mellon has sued
Alabama's bankrupt Jefferson County, accusing the county of
improperly cutting the amount of money owed to holders of its
BNY claimed in a lawsuit filed Friday in U.S. Bankruptcy
Court in Birmingham that the county is improperly charging
attorneys' fees and other costs against the system's net
The bank is indenture trustee of $3.6 billion of sewer
system warrants, debt that was the main cause of Jefferson
County's landmark bankruptcy filing in November. An indenture
trustee handles administrative aspects of loans, including
watching to make sure the loan is paid.
A U.S bankruptcy judge last month returned control of the
system to county officials from a state-appointed receiver.
The lawsuit claims that reducing the system's net revenue
due creditors by deducting certain costs, which include
depreciation and amortization, money for planned capital
expenditures and other non-operating costs violated the
A creditor source who spoke on condition of anonymity said
Jefferson County has made payments since resuming control but at
a reduced rate. The system has monthly cash flow of about $9
million, the source said.
Jefferson County, which is home to Birmingham, Alabama's
biggest city, and is a regional business hub, has cut yearly
spending by $100 million and plans an additional $40 million in
U.S. Bankruptcy Judge Thomas Bennett required county
officials to continue payments to creditors from the system's
revenue but did not specify amounts.
The BNY lawsuit asks Bennett to bar Jefferson County from
charging any expenses beyond labor and other customary operating
costs from the monthly amounts due to sewer system warrant
A bankruptcy attorney for the county was not immediately
available to comment on the lawsuit.
On Nov. 9, after a tentative agreement with creditors
unwound, Jefferson County filed the biggest U.S. municipal
bankruptcy case, saying it was overwhelmed by $4.23 billion of
debt mostly caused by borrowing for the county sewer system.
Creditors such as JPMorgan Chase opposed the filing, and a
federal judge has yet to rule on whether or not the county is
eligible for Chapter 9 federal bankruptcy protection.
Jefferson County defaulted on the sewer warrants in 2008.