BRADENTON, Fla. - Moody's Investors Service said Monday that a recent ruling in Jefferson County, Ala.'s bankruptcy case is a credit positive because it will prevent further dilution of revenues securing the county's $3.14 billion of defaulted sewer warrants.
U.S. Bankruptcy Judge Thomas Bennett ruled June 29 that the county could not withhold sewer revenues for depreciation, amortization, reserves or estimated expenditures for the legal expenses related to the county's bankruptcy case.
Creditors had argued that sewer revenues had never been used for those purposes before, and that such uses violated the indenture for the sewer warrants.
"The ruling is credit positive since revenues available to pay delinquent sewer system debt will not be diluted by these expenses," said Moody's analyst Julie Beglin.
Jefferson County has been in default on its sewer warrants since 2008. Moody's currently rates the debt Caa3.
Last week, the county filed a motion asking the court to reconsider, clarify or amend portions of the June 29 ruling.
"It appears that the court did not determine all of the disputed questions relating to the county's professional fees," JeffCo attorneys said in a motion filed July 5.
While the court said the county could not deduct estimated sewer-related professional fees incurred as part of its Chapter 9 bankruptcy case, the court did not decide what actual legal fees could be paid with sewer revenues, the motion said.
A hearing has been scheduled July 25 on the county's motion. The county also said that it may appeal the judge's ruling.
Jefferson County filed the nation's largest municipal bankruptcy last November after failing to negotiate restructuring of the sewer debt with creditors, and after Alabama courts struck down a significant source of revenue that had supported general fund operations.
