BIRMINGHAM, ALA., DEC 15 (Reuters) - A judge
on Thursday said creditors battling Jefferson County's $4.23 billion bankruptcy are down to only one possible
argument to have the Alabama county's case dismissed.
U.S. Bankruptcy Judge Thomas Bennett told lawyers at a court
hearing that the county had shown a record of good-faith
negotiations, debts too great to pay off and a willingness to
work out a deal with creditors.
The county filed for Chapter 9 bankruptcy on Nov. 9 after it
was unable to work out a deal with creditors owed more than $3.1
billion in sewer-system debt. It is the biggest municipal
bankruptcy filing in U.S. history.
Bennett said the sole question remaining that might scuttle
the case was whether Alabama law requires a local government
seeking bankruptcy protection to have outstanding bonds, instead
of warrants, such as the sewer-system debt at the heart of
Jefferson County's crisis.
Bennett will seek state government comment on whether bonds
are necessary for bankruptcy under Alabama law. He gave lawyers
until Dec. 28 to submit written questions to him on the issue.
Another U.S. bankruptcy judge last year dismissed a
bankruptcy filing by Prichard, Alabama, because it had no bond
debt. Unlike bonds, warrants can be issued by governments
without specific voter approval.
Jefferson County, Alabama's most populous, filed for
bankruptcy protection after a highly tentative September
agreement that had promised to reduce the county's debts by $1
billion had been impossible to complete.
The county's finances were ravaged by sewer-system financing
aggravated by political and Wall Street corruption and 2008's
global credit crunch. Last spring, the county lost a local jobs
tax that provided $75 million a year in revenue.
The bankruptcy filing left the county, with a population of
more than 660,000, atop the list of U.S. local governments that
have declared themselves insolvent. Its biggest creditor is
JPMorgan Chase.
Unwinding the county's bankruptcy case, as has been done
recently by federal judges ruling in cases involving Harrisburg,
Pennsylvania and Boise County, Idaho, would retain for creditors
the right to revenue of about $4.5 million monthly from the
county's sewer system.
Creditors separately asked Bennett to leave John Young, a
receiver put in place last year, in charge of the sewer system
despite an automatic stay limiting his power that was generated
by the bankruptcy filing. The judge has yet to rule on the state
court-appointed receiver's role under bankruptcy.
Others, including county employees put on leave, are also
seeking to block the county's bankruptcy filing.
The case is In Re: Jefferson County, Alabama, U.S.
Bankruptcy Court for the Northern District of Alabama, No.
11-05736.
For Jefferson County: Patrick Darby of Bradley Arant Boult
Cummings.
For Bank of New York Mellon: Larry Childs of Waller Lansden
Dortch and Davis.
(Reporting by Michael O'Connor; Additional reporting by
Melinda Dickinson)
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