Judge to Appoint Receiver for Jefferson County, Ala., Sewer System

BRADENTON, Fla. — Alabama Circuit Court Judge Albert Johnson ruled Tuesday that he would appoint a receiver to take over Jefferson County’s sewer system, which is saddled with nearly $3.2 billion of variable- and auction-rate warrants.

Bank of New York Mellon sought a receiver as trustee for the non-recourse warrants on which the county has defaulted.

“We are pleased with the court’s decision to appoint a receiver, which will help protect the interests of the bondholders,” said Kevin Heine, spokesman for the bank.

The judge still must interview candidates, appoint the receiver, and determine what powers the receiver will have over setting sewer rates. No timeline was set for those events to occur.

Up to two weeks had been set aside for the receivership trial. But the trial ended shortly after the judge’s ruling on BNY-Mellon’s motion for summary judgment finding the county in default of its payments and entitling the trustee to a receiver.

“We were prepared to go forward with trial,” said Joe Mays Jr., a lawyer with Bradley Arant Boult Cummings LLP, which represents the county. “We’ve still got a long way to go.”

Mays said he believed there would be negotiations between the attorneys and the judge over how much power the receiver will be granted to raise ­revenues.

“This debt is payable only out of the net revenues of the sewer system,” Mays said. “This is not a general obligation of the county. The bondholders have no claim on any assets of the county except on the net revenues of the sewer system as spelled out in the bond indenture.”

Because only sewer system revenues secure the warrants, some legal experts have said in the past that it is unlikely the sewer debt would force the county to file for municipal bankruptcy.

BNY-Mellon filed the civil suit in Alabama state court in August 2009 seeking a receiver for the sewer system as well as a court order requiring county commissioners to raise sewer rates and impose additional sewer charges and fees to pay bondholders.

Numerous lawsuits concerning the sewer system and corruption are pending in Alabama and New York courts.

For several years, the county has been unable to negotiate restructuring of the sewer debt, which is rated at junk level by all three major rating agencies.

The county has been faced with penalty rates and accelerated principal payments, which the net revenues of the sewer system cannot pay.

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