November 16, 2012 / 10:56 PM / 5 years ago

Bankrupt Alabama county's leaders report headway toward deal

Nov 15 (Reuters) - Negotiators for Alabama’s bankrupt Jefferson County and Wall Street creditors are making modest headway but still have a long way to go before reaching a deal to end America’s biggest municipal bankruptcy, county leaders said on Friday.

After meeting creditors of the county’s sewer system, Jefferson County Commission President David Carrington and Commissioner Jimmie Stephens gave no details but said more negotiating sessions were expected in New York in early December.

“Yesterday’s meetings with the sewer creditors in Los Angeles were productive, but much more work needs to be done before there can be a consensual agreement,” Carrington and Stephens said in a written statement.

Home to Birmingham, Alabama’s biggest city, Jefferson County on Nov. 9, 2011, filed a $4.23 billion Chapter 9 municipal bankruptcy caused mainly by more than $3 billion of soured sewer system debt, political corruption and the loss of a local jobs tax worth about $60 million a year.

The county has defaulted on debt payments, laid off hundreds of government workers and cut back on police, repairs, medical and other essential services.

Under Chapter 9, the county gets much relief from lawsuits and creditors but is obliged to develop a plan of adjustment sketching out how it will satisfy creditors and fund future operations.

The plan must ultimately be approved by a U.S. bankruptcy judge, and Carrington has said he hopes to have the plan ready sometime this winter.

Last week, Carrington, Stephens and other county commissioners approved a sewer-system rate hike of about $2 a month for most customers. The rate hike will be the first since 2008 and equals a rise of about 5.2 percent over five years, based on the county’s average monthly sewer bill of $38 for about 126,000 customers.

Wall Street creditors say the rate hike was too little and asked Judge Thomas Bennett, who is overseeing the case, to allow them to press for bigger increases in a state court. Bennett has not ruled on that request.

Bondholders, including some who still draw payments from the sewer system’s revenues after expenses, argued that the county’s rate hike badly trailed national trends of increases of more than 26 percent over five years.

A tentative agreement reached prior to last November’s bankruptcy filing fell apart. That deal might have delivered a $1 billion reduction in the county’s debts.

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