A May 9 hearing has been scheduled in Birmingham, Ala., federal court so a judge can consider a motion by Bank of New York Mellon seeking documents and a detailed review of bankrupt Jefferson County's sewer system finances, studies, assets, and future plans.
BNY Mellon, trustee for $3.1 billion of defaulted sewer warrants, has also requested numerous documents, including those related to "poor planning, gross incompetence, waste, graft, corruption, or fraud in connection with the construction, repair or rehabilitation" of the sewer system since 1997.
"The county has indicated…that it intends to file a plan of adjustment as early as June 2013, and that such a plan may attempt to reduce the amount of the indebtedness the county must pay to the warrant holders based on the value of the system, the value of the stream of net revenues generated from the system, or some combination of the two," the bank said in a court filing.
"The trustee has repeatedly disputed, and continues to dispute, the notion that a valuation of the system or the net revenues is appropriate or relevant in the context of the county's obligations under the indenture, the warrants, and the related agreements," the BNY Mellon filing said.
County commissioners approved a new rate structure in November that incorporates losses due to corruption and asset values that are far less than the outstanding $3.14 billion of debt.
Before the plan is filed, BNY Mellon said it needs to prepare an analysis and response to county an attempt by the county to place a "value" on the system and net revenues, or plans to discharge any debt.
Twice before the trustee previously sought so-called Rule 2004 Examination of Debtor, but they were resolved. The latest motion appears to seek a more extensive review in light of public comments by county officials who have said they may seek $1 billion to $2 billion in haircuts in the sewer debt.
Jefferson County signed a consent decree in 1996 agreeing to rehabilitate and consolidate most of the county and municipal sewer systems.
Since then, 21 elected officials, contractors, a local broker-dealer and a local lobbyist have been convicted of crimes related to the sewer construction and borrowing.
Two former JPMorgan bankers are being pursued in federal court for securities violations.
