BRADENTON, Fla. – Federal Bankruptcy Judge Thomas Bennett has agreed to hold an expedited hearing June 27 to consider Jefferson County, Ala.’s motion to delay pending litigation over issues related to its overleveraged sewer system.

The county has also filed a request with the 11th Circuit Court of Appeal seeking to postpone oral arguments on July 24 on creditors’ appeals about the status of a receiver in Chapter 9 bankruptcy, and the county’s challenge of Bennett’s ruling protecting sewer system revenues for the payment of debt.

The hearings may not be needed because a settlement to lead the county out of bankruptcy is in sight, the county argues.

In Jefferson County’s bankruptcy case before Bennett, the county and sewer system creditors holding about 78% of the $3.08 billion of outstanding sewer warrants want to delay pending sewer-related motions in the core case until Dec. 31. Bennett has already stayed two adversarial proceedings by sewer system ratepayers, and plans to hold hearings June 27 on three others.

The county’s request for staying litigation is based on plan support agreements, or PSAs, involving 78% of the sewer debt held by JPMorgan, an “ad hoc” group of hedge funds, and bond insurers Assured Guaranty Municipal Corp., Financial Guaranty Insurance Co., and Syncora Guarantee Inc.

Parties to PSAs have agreed to approve the county’s plan of adjustment, which is expected to be filed by July 1. If Bennett accepts the plan, creditors must then vote on it. Since parties to the PSAs have agreed to haircuts ranging between 31% and 80%, and they hold 78% of the sewer debt, their votes could cram down, or impose, haircuts on remaining sewer warrant holders.

“To facilitate confirmation of an acceptable plan and to avoid further costs associated with the continuation of the sewer related litigation, the sewer plan support parties and the county agreed in the PSAs to take all reasonable steps to obtain and implement a suspension and standstill of all sewer related litigation,” the county said in a court filing Wednesday.

The filing went on to say that “staying the sewer-related litigation is appropriate because plan confirmation and consummation will resolve and moot the various complex issues raised by the sewer-related litigation.”

Similar arguments were made by the county and PSA parties in a request to postpone sewer-system related appeals pending before the 11th Circuit Court in Atlanta.

Bank of New York Mellon, trustee for the sewer warrants, did not oppose delaying any litigation.

However, a group of liquidity banks holding about $138 million of sewer warrants have opposed delaying the appellate court cases, saying they involve “live controverted issues.”

The liquidity banks – State Street Bank and Trust Co., Bank of Nova Scotia, and BNY Mellon – asked the appellate court to allow the appeals to go forward as scheduled.

Jefferson County has already announced PSAs with some holders of its general obligation, lease revenue, and school warrants. The county said in a recent court hearing that it is continuing negotiations with other creditors.

Alabama’s most populous county filed the country’s largest municipal bankruptcy in November 2011. The county now says its plan is to exit bankruptcy this December.

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