Jefferson County Creditors Denied Bankruptcy Committee

Jefferson County, Alabama’s creditors can’t form an official committee until they find new members willing to serve on the panel, the judge overseeing the county’s bankruptcy ruled today.

U.S. Bankruptcy Judge Thomas B. Bennett agreed with the county, which argued that two of the three currently proposed committee members aren’t eligible to serve on a panel. Bennett said an unsecured bondholder pushing for an official committee, Bayerische Landesbank, can try as early as next month to win approval for a panel should new, qualified members agree to participate.

“It is important to get a date on as soon as possible,” said bankruptcy attorney Craig A. Wolfe, referring to the next available hearing when the creditors could seek official recognition as a committee. Wolfe represents the three creditors, including BayernLB, who were requesting the panel.

Thomas Corbett, bankruptcy administrator for the federal court in Birmingham, Alabama, had asked Bennett to appoint a panel that would participate in the case. The creditors are Beckman Coulter Inc., a biomedical testing company, BayernLB of New York and UAB Health System, the medical center that is part of the University of Alabama in Birmingham.

In corporate Chapter 11 bankruptcies, such committees are routine and their bills are paid by the bankrupt company. In municipal Chapter 9 bankruptcies, like Jefferson County’s, committees are rarer and their bills aren’t automatically reimbursed.

Municipal Bankruptcy

Jefferson County entered the largest U.S. municipal bankruptcy in November after local and state officials and creditors failed to implement an agreement to cut the county’s sewer debt by about $1 billion. The county owes creditors about $4.2 billion, including more than $3 billion in bonds related to the sewage system, according to court records.

Beckman and UAB have either been paid in full or will be paid in full before the case is over, so they wouldn’t qualify as unsecured creditors, the county argued.

The three companies were the only creditors to respond to Corbett’s request to form an official committee of unsecured creditors. Corbett said he would try again to solicit members to serve on a panel.

The case is In re Jefferson County, 11-05736, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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