By Melinda Dickinson
BIRMINGHAM, Ala., Feb 14 (Reuters) - Officials in Alabama’s bankrupt Jefferson County approved a deal on Thursday with European Depfa Bank Plc to cut interest charges on about $162 million of the county’s school debt.
Although the “plan support agreement” saves only about $1 million a year for the county, which in 2011 filed a $4.23 billion municipal bankruptcy, the resolution passed by the Jefferson County Commission said the deal would bolster the county in talks to hammer out a broader adjustment plan with its Wall Street creditors.
Home to Birmingham, Alabama’s biggest city, Jefferson County was primarily driven into what is the biggest bankruptcy ever by a U.S. local government by massive sewer system debt now estimated at $3.2 billion.
Some creditors and county officials are meeting privately to work out a possible plan likely to require reductions in interest rates and other concessions by creditors such as JPMorgan Chase & Co. The plan is needed for Jefferson County to exit bankruptcy protection. The county filed for bankruptcy in November 2011.
Jefferson County said the Depfa debt was among its costliest and had carried an interest rate of 3 percent over Libor since a 2009 default. Jefferson County Manager Tony Petelos said the new rate was 75 basis points lower.
In addition, he said, the county agreed to repay its Depfa debt faster than scheduled, including an accelerated payment of $20 million this year.
A representative of Depfa, based in Dublin but supervised and supported by the German government, did not immediately respond to an inquiry for comment on the agreement.
Separately, Jefferson County won dismissal on Thursday of a lawsuit by Birmingham’s city government against the closure on Dec. 31 of in-patient care at Cooper Green Mercy Hospital.
As part of severe cost cutting, which has seen current fiscal year spending shrivel by $107 million to $205 million, county officials eliminated in-patient care at Cooper Green used mostly by poor people in Birmingham.