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Jefferson County Commissioners Said to Discuss Bankruptcy

July 21 (Bloomberg) -- Jefferson County commissioners are meeting today with lawyers to discuss bankruptcy, according to a county staff member with direct knowledge of the talks.

Officials of the Alabama county are considering hiring Kenneth Klee, according to the person, who asked for anonymity because the discussions are private. Klee represented Orange County, California, in its 1994 bankruptcy, which was the largest municipal filing. Commissioners are also meeting with Jeffrey Cohen, a Denver-based lawyer with Patton Boggs LLP, the person said.

A bankruptcy filing isn’t imminent, Klee said in an interview after the meeting in Birmingham. The county should continue to pursue a negotiated settlement until its reserve is spent, he said.

“A good settlement bargained in the shadow of Chapter 9 is best for the county,” said Klee, referring to the section of the U.S. bankruptcy code that governs municipal bankruptcy.

A filing by Jefferson County, whose creditors hold more than $4 billion in bonds, would break Orange County’s record.

The county, home to Birmingham, the state’s largest city, has spent more than three years in fiscal distress after a $3 billion sewer-bond refinancing collapsed during the credit crisis. Its woes were compounded when the Legislature refused to act after a court struck down an occupational tax in March.

Heading to Court

Before today’s meeting, Commissioner Sandra Little Brown put the odds of bankruptcy as 80 percent.

“We’re at the end of our rope and have exhausted all our options,” she said. She didn’t comment after the meeting.

Cohen declined to comment when reached by telephone.

Last month, the county, creditors led by JPMorgan Chase & Co., and a court-appointed receiver agreed to a 30-day respite to pursue a settlement to the debt crisis. Governor Robert Bentley said he would help broker a deal.

The county has proposed cutting the amount of debt it must repay to about $2 billion and agreeing to sewer-rate revenue increases of 8 percent for the next three years. The state would create a public utility to issue new bonds backed by sewer revenue and enhance the creditworthiness of the debt.

Previously, holders of the sewer debt and companies that insure the bonds proposed the county issue as much as $2.4 billion in refinancing bonds and raise sewer revenue more than 25 percent for at least three years.

JPMorgan had no comment, Justin Perras, a spokesman, said in an e-mail.

Debt Lives On

The county’s debt might be reduced in a Chapter 9 bankruptcy, not wiped away, said Matt Fabian, a managing director of Concord, Massachusetts-based Municipal Market Advisors.

“Hopefully, the bankruptcy attorneys will help the council understand that Chapter 9 doesn’t provide the kind of debt relief that they may think it provides; education is a good thing,” Fabian said in an e-mail.

A Jefferson County bankruptcy probably wouldn’t cause a systemic disruption of the $2.9 trillion municipal market, Fabian said.

“Probably half the muni market thinks Jeffco is already in bankruptcy,” Fabian said.

Even if the debt is restructured, the county still must balance its budget without the occupational tax, which generated about $75 million annually, Fabian said.

To contact the reporter on this story: Martin Braun in New York at

To contact the editor responsible for this story: Mark Tannenbaum at

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