Reuters logo
UPDATE 1-Alabama county's plan to end $4.2 bln bankruptcy gets judge's OK
November 21, 2013 / 11:21 PM / 4 years ago

UPDATE 1-Alabama county's plan to end $4.2 bln bankruptcy gets judge's OK

* Judge overrules objections of some sewer customers

* Opposing lawyer says appeal coming

* County bankruptcy seen ending within weeks (Adds details, quotes, reaction and background)

By Verna Gates

BIRMINGHAM, Ala., Nov 21 (Reuters) - A U.S. judge on Thursday approved a landmark settlement between Alabama’s bankrupt Jefferson County and creditors that locks in more than $1 billon of losses for Wall Street and clears a path to end the second-biggest U.S. municipal bankruptcy case.

Acting just days after underwriters sold $1.78 billion of Jefferson County sewer-system debt, Federal Bankruptcy Judge Thomas Bennett in Birmingham overruled objections by sewer users looking at 40 years of rate hikes and confirmed the agreement.

The county aims to exit bankruptcy on Dec. 3, when it closes on the bond sales, whose proceeds will pay off JPMorgan Chase and other owners of $3.1 billion of defaulted sewer debt at about 54 cents on the dollar.

Such losses for muni bond owners have not been seen the Great Depression, analysts say.

Attorney Calvin Grigsby, who represents sewer-system customers arguing that the plan’s rate hikes overburden poor people, said he would appeal Bennett’s decision as soon as next week.

“This bankruptcy is supposed to give Jefferson County a fresh start, and this is just digging a deeper hole for the future,” Grigsby said.

Bennett, in an oral ruling after two days of court hearings, said he sympathized with low-income sewer customers but said the bankruptcy-exit plan required sacrifices by all parties.

“Compromise is the heart of all reorganization plans,” Bennett said. “The plan, as any plan, will not meet the wants, needs, desires of all parties.”

Jefferson County declared its $4.2 billion, Chapter 9 bankruptcy on Nov. 9, 2011, mostly because of soured sewer-system debt and the loss of $60 million in annual revenues. It was the biggest U.S. municipal bankruptcy filing until July, when Detroit sought protection with its $18 billion of claims.

Jefferson County’s bond deal required unusually high tax-free interest rates of as much as 8 percent and was the first time a U.S. local government had sold muni debt while in bankruptcy. The three-day offering completed on Tuesday, in which foreign buyers bought some of the debt, also skirted a taboo in the $3.7 trillion U.S. muni market on borrowing by issuers that have short-changed lenders.

The workout plan, which gives the bankruptcy court unusual authority for four decades over the county’s sewer rates, will likely take effect Dec. 3, when Jefferson County is expected to close on its $1.78 billion sewer-debt sale, according to Patrick Darby, a bankruptcy lawyer for the county. (Reporting by Verna Gates; Writing and additional reporting by Michael Connor in Miami; Editing by Dan Grebler)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below