BIRMINGHAM, Alabama (Reuters) - Legislators in Alabama’s Jefferson County on Wednesday voted 4 to 1 to file for bankruptcy court protection in what would be the biggest municipal bankruptcy in U.S. history.
Despite a tentative deal with creditors reached in September to settle $3.14 billion of debt, county commissioners this week resurrected the threat of a Chapter 9 bankruptcy filing largely because the estimated savings from the September agreement had shrunk by about $140 million.
The filing could add to heightened concerns in the $3.7 trillion U.S. municipal bond market, which has recently been hit hard by the high-profile debt crisis in Pennsylvania’s capital of Harrisburg.
Creditors such as JPMorgan Chase & Co and the county in September reached a tentative deal calling for Jefferson County’s sewer-system debt to be substantially reduced, but final terms were not reached.
A sticking point discussed in a commissioners’ meeting on Monday was adjustment of a $140 million difference between the originally agreed-upon $2.05 billion the county must repay the creditors. That figure recently crept up to $2.19 billion.
The September agreement was seen as a turning point for Jefferson County, which since 2008 has teetered on the edge of a bankruptcy that would have surpassed that filed by Orange County, California, in 1994.
Jefferson County’s debt escalated in the mid-2000s with interest and auction rate bond deals as it sought to refinance an upgrade of its sewer system.
Should Jefferson file Chapter 9 bankruptcy, at over $5 billion for the county’s total indebtedness, it will be the largest municipal filing in U.S. history.