BRADENTON, Fla. - A federal judge in Birmingham late Monday said that Jefferson County, Ala.'s bond insurers and trustee are free to file suit July 20 in state court seeking to have a receiver take over the county's financially troubled sewer system.

In a two-page ruling, Judge David Proctor said that he would stay the federal suit for a receiver brought by the sewer debt's largest insurers, Syncora Guarantee Inc. and Financial Guaranty Insurance Co., and bond trustee Bank of New York Mellon.

Proctor also gave Jefferson County commissioners until July 15 to file a notice as to whether they intend to proceed with their counterclaims against the bond insurers, but the judge also said he would stay the receivership complaint until further notice.

BNY Mellon, Syncora, and FGIC said in a court filing June 29 that BNY likely would file suit in Alabama state court to push for a receiver to take over the county's sewer system, which is plagued by more than $3.2 billion of troubled variable- and auction-rate debt that the county has failed to restructure.

A BNY Mellon spokesman said recently that the bank is studying its options. County commissioners have not released a public statement following Proctor's ruling on Monday.

The judge ruled June 12 that he could not appoint a receiver with rate-making power because the federal code prohibits federal courts from taking actions that affect the rates of utilities organized under state laws.

However, Proctor said the evidence was overwhelming that the county has "engaged in numerous events of default" and even suppressed a 2003 study warning the county that sewer system's revenues would not be enough to service the debt.

"The county has demonstrated that it is unwilling to make the hard and politically unpopular - but necessary - decisions to recover financially," Proctor said.

"There is no evidence that the county, who opposes appointment of a receiver, would be harmed by the appointment of a receiver," he said. "The county is not administering the sewer system in a fiscally responsible manner."

"Thus, although clearly the commission is uncomfortable with the idea that it would lose some control over the sewer system, there is nothing in the record to suggest it would be harmed by a receiver's better management of its administrative and financial operations," Proctor said.

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