BRADENTON, Fla. — Lloyds TSB sold its defaulted Jefferson County, Ala., sewer warrants, and is the second creditor to opt out of legal action in the nation’s largest municipal bankruptcy.

The bank transferred all of its $67.9 million of Series 2003B-7 refunding warrants, and in court documents said it is no longer interested in pursuing the appeal of a ruling by Federal Judge Thomas Bennett removing a state court-appointed receiver from overseeing the county’s sewer system. The bank’s warrants were purchased pursuant to standby purchase agreements with the county.

Bennett dismissed Lloyds Wednesday from the 11th Circuit Court of Appeals case. The appeal is challenging whether Bennett had the power to remove the receiver.

Court records show that Fundamental Partners LP purchased $17.5 million of the 2003B-7 warrants and $10.35 million of accrued defaulted interest from Lloyds, though individual claim filings show that Fundamental’s purchases amount to hundreds of millions of dollars.

Emerald Eagle Holdings LLC said in one filing that it purchased $7.5 million of Lloyds’ sewer warrants, though its individual claims also indicate many more warrants have been purchased.

No one from Fundamental Partners, Emerald Eagle or Lloyds could be immediately reached for comment.

Societe Generale also sold a portion or all of its 2002 sewer warrants to Fundamental Partners, though it was not party to the receivership appeal.

Creditors that continue to pursue the appeal are Bank of New York Mellon, trustee for the sewer warrants, the former sewer system receiver John S. Young, Assured Guaranty Municipal Corp., Financial Guaranty Insurance Co., Syncora Guarantee Inc., Bank of Nova Scotia and JPMorgan.

Bank of America NA and its affiliate Blue Ridge Investments LLC asked the court to be dismissed from the appeal on Aug. 10 after selling all of their combined sewer warrants, $225.7 million, said bank spokeswoman Shirley Norton. The buyer or buyers were not revealed.

“I can confirm that the bank sold its Jefferson County claims to another investor, and no longer plans to participate in the appeal,” Norton said. “Beyond that, we have no comment.”

Other creditors have also sold all, or a portion, of their warrants.

In other action, Bennett Wednesday told a separate group seeking class action status to re-file their claim and the legal basis for seeking $1.63 billion by Sept. 7. The judge reportedly said during a recent hearing that the group’s complaint needed “substantial” rewriting.

The claim was filed by more than a dozen residents, City Council members and state lawmakers who live in Birmingham, the seat of Jefferson County.

Their claim is based on a legal theory that corruption underpinning the sewer warrant deals and associated interest rate swaps violated certain indentures and the Alabama constitution, and therefore the deals are illegal.

In opposing the claim, BNY Mellon called it “a procedurally improper attempt to pursue frivolous claims.”

The bank said that before the county filed for bankruptcy, the same claim was made in the state court case that resulted in the appointment of a receiver for the county’s sewer system.

The state court did not allow the claimants to intervene in the receivership case, and that ruling was not appealed, the trustee said. The attempt to certify a class action is an improper attempt to attack the state court’s order and “inappropriately pursue, in a different forum and through the proof of claim process, their baseless claims against the trustee and others,” BNY Mellon said.

The trustee also said that certifying the claim would adversely affect the administration of the bankruptcy case, in addition to being costly to litigate.

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