BRADENTON, Fla. – Jefferson County, Ala.’s disclosure statement won approval in Birmingham federal court Tuesday, after Federal Judge Thomas Bennett struck down objections to the bankruptcy plan.
The disclosure statement about the county, the history of difficulties that led to financial problems, and plans to deal with $4.2 billion of outstanding debt met the standard required for creditors to vote on it, Bennett ruled.
Attorneys for two ratepayer groups, including one represented by former investment banker Calvin Grigsby, and the city of Bessemer with the Birmingham Water Works Board, argued the county’s sewer refinancing plan would have deleterious impacts on them. Bennett said none had standing to sustain their objections to the statement.
The county’s plan hinges on restructuring $3.1 billion of outstanding variable- and auction-rate refunding securities sold largely to continue work on the sewer system under a federal consent decree and to avoid large near-term rate increases.
If creditors approve the plan of adjustment with their upcoming votes, the county expects to refinance $1.9 billion of sewer warrants after emerging from bankruptcy in December. The plan will reduce the county’s outstanding principal by about $1.3 billion, with JPMorgan taking most of the loss.
Kenneth Klee, one of the county’s bankruptcy attorneys with Los Angeles-based Klee, Tuchin, Bogdanoff & Stern LLP, told the court Tuesday that if interest rates continue to rise the county’s may not be able to market the new refunding warrants.
The county has already proposed increasing sewer rates twice to support the new debt, with the second proposed rate hike coming after interest rates affecting the refinancing plan ticked higher.
The most recent plan increases the sewer system’s base rates by $5. There will also be four, annual rate increases of 7.89% followed by 3.49% yearly rate increases thereafter. County commissioners still face public hearings on the rates.
Klee indicated that the rates as proposed now are as high as the county intends increase them. He also said that those filing objections do not vote on the plan, and therefore have no say in the legitimacy of the county’s disclosure statement.
The county also needs to move forward with the remaining work toward confirming the bankruptcy plan, after creditors vote on it, he said.
Attorneys for the ratepayers objected, saying that the county’s proposed rates are unreasonable. Grigsby posted several arguments to the judge in an attempt to show that his group had standing, all of which were overruled.
The Water Works Board, which also bills most of the sewer system customers for the county, said the county’s higher rates may make it difficult for water customers to pay their bills.
Jefferson County, Alabama’s most populous county, filed what was then the largest Chapter 9 bankruptcy petition in November 2011. Though it has since been eclipsed by Detroit’s recent filing, Jefferson County remains the largest county bankruptcy case.