Alabama’s Jefferson County Debt Accord Near, Court Told

Alabama’s Jefferson County is making progress in debt talks, has an agreement with one group of creditors, and may file a “mostly consensual” plan to exit bankruptcy, a lawyer for the county told a judge.

By the end of June, the county plans to file a plan to adjust its debt, with or without the support of sewage system warrant holders owed more than $3 billion, lead bankruptcy attorney Kenneth Klee said today in U.S. Bankruptcy Court in Birmingham, Alabama.

The county is “extremely close” to resolving disputes with the warrant holders, JPMorgan Chase & Co. and seven hedge funds holding about $900 million in debt, Klee said. The county “has a ways to go” to agree with bond insurers holding more than $300 million in the defaulted sewage system’s debt, he said.

If all parties sign a binding term sheet, the county will have the support of investors holding $2.4 billion of the sewage-system debt, Klee said. It has a separate agreement with creditors who don’t hold the sewer debt and may make details public next week, he told U.S. Bankruptcy Judge Thomas Bennett.

Before Jefferson County filed bankruptcy in November 2011, officials, creditors and state officials were close to a deal to trim about $1 billion from the county’s debt and avoid court. The deal fell apart because “we couldn’t get people to sign things,” Klee said.

Target Date

The goal in the coming weeks is to persuade all parties to sign binding agreements that would make it easier for the county to win court approval of a so-called plan of adjustment that would reduce the county’s debt and allow it to exit bankruptcy by the end of the year, Klee said.

Without binding agreements, the county would file a plan that would force creditors to accept reduced payments on the debt despite their objections, Klee said. Getting that plan approved by Bennett would take much longer, he said.

A consensual plan would still need to go to creditors for a vote. Bennett is required to take that vote into consideration when deciding whether to approve the reorganization.

Investors who hold about $500 million in sewage-system warrants have not been part of the talks and may vote against a plan, said David Lemke, an attorney for Bank of New York Mellon Corp., the trustee for sewage warrant holders. The trustee has not been part of the most recent round of talks, Lemke said.

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

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