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Jefferson County Settles With Lender Group, Lawyer Says

Alabama’s Jefferson County reached a settlement with lenders owed at least $138 million, increasing the number of creditors who have signed onto a deal to restructure more than $3 billion in debt, a lawyer said.

The liquidity banks and a bond insurer joined seven hedge funds, JPMorgan Chase & Co. and several other creditors in settling their disputes, Jefferson County attorney Jennifer Harris Henderson told a judge today in U.S. Bankruptcy Court in Birmingham, Alabama.

The latest settlements will increase support for a “consensual, or largely consensual plan” to exit bankruptcy, Henderson said.

On June 4, the county announced an agreement to pay its largest creditors $1.84 billion, or about 60 percent of what they’re owed, as part of a plan to end the biggest U.S. municipal bankruptcy by the end of the year. The agreement, if approved by a court as part of a bankruptcy-exit plan, will resolve more than $3 billion in debt related to the county’s sewage system.

After the court hearing, the county commission voted 4-1 to approve the settlements, which include Bank of Nova Scotia, State Street Bank & Trust and bond insurer National Public Finance Guarantee Corp.

U.S. Bankruptcy Judge Thomas Bennett must approve the agreements at a November hearing before the county can refinance the sewer debt and end its Chapter 9 case.

Ratepayer Suit

Separately, Bennett refused to lift a temporary halt to a ratepayer lawsuit challenging the legitimacy of some of the sewage-system debt. The ratepayers can bring their complaint about the debt before the court as part of the November hearing on the bankruptcy-exit plan, Bennett said.

Jefferson County supplanted Orange County, California, as the largest municipal bankruptcy. Orange County entered court protection in 1994 after losing $1.7 billion on interest-rate bets. Partly because of lawsuits against financial firms, Orange County creditors were paid in full.

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

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