BRADENTON, Fla. — Assured Guaranty Municipal Corp. Tuesday asked Jefferson County, Ala.’s bankruptcy judge to order the county to file a plan of adjustment by the end of September.
Assured said that it appears the county is not taking concrete steps to propose a plan or even provide a time frame for proposing a plan, and that “has substantially harmed the county’s creditors.”
The insurer has said in previous filings that it had a net exposure of $731.8 million to the county’s obligations, mostly related to the county’s defaulted sewer warrants.
The bankruptcy code allows the court to set a deadline for the filing of a plan, and also allows that the court can dismiss a case for failure to propose a plan within the deadline, according to John Whitlock, a partner and bankruptcy attorney at Edwards Wildman Palmer LLP.
“It is clear that the court has the power to set the deadline and to enforce the deadline by dismissing the case. Whether the court will do so is not clear,” Whitlock said. “Most bankruptcy judges are inclined to give the debtor an opportunity to formulate its plan. Most courts would be reluctant to conclude that no plan is feasible relatively early in the proceedings.”
Jefferson County filed the largest municipal bankruptcy in U.S. history last November with more than $4 billion of outstanding debt. The petition was filed after county commissioners unsuccessfully conducted several months of intense negotiations with creditors seeking to restructure $3.14 billion of sewer warrants.
Federal Judge Thomas Bennett returned control of the sewer system to the county in January. A state court-appointed receiver had run it since late 2010.
Assured said little has been done since then, either toward raising sewer rates or developing a plan of adjustment. The county has not raised sewer rates in more than four years, and recently began holding a series of public hearings though no rate proposal is on the table. Fact-gathering hearings are scheduled for July 24 and Aug. 21, though the county said more may be held. The county said it may release a specific rate proposal in September.
Assured’s court filing pointed out that the county told the bankruptcy court that filing for Chapter 9 would give it time to seek fiscal relief from the Legislature after a court struck down an occupational tax that provided a significant source of revenue for the general fund.
During the regular session earlier this year, the Alabama Legislature debated measures that would have provided the county with relief, but none passed. Though it has been suggested by some that a special session might be called to address the problem, none has been formally announced.
County commissioners and their attorneys have said they cannot propose a feasible plan without legislative intervention, Assured’s filing said.
“There is currently no indication that legislative action is coming,” Assured said. “There is thus no end in sight to the county’s delay as it continues to wait for legislative intervention.”
Assured said it is ready to consider any plan, preliminary or otherwise, and would “engage in meaningful negotiations with the county” in order to work toward a consensual plan of adjustment, if possible. If the county cannot propose a plan, and ultimately seeks dismissal of its bankruptcy case, Assured said that creditors would expect the receiver appointed by the state court to resume control of the sewer system and pursue rate increases.
Assured has asked the judge to require that Jefferson County file a plan of adjustment by Sept. 28.
The county delay in filing a plan is prejudicial to creditors, substantially harming both the sewer warrant creditors and the county’s general obligation creditors, Assured said, noting that the county has also defaulted on its GO warrants. “With every month that passes, potential revenue to pay the sewer warrants is forever lost to the sewer warrant creditors.”
