BRADENTON, Fla. — The Securities and Exchange Commission said late Thursday that it is a “statutory party in interest” in Jefferson County, Ala.’s bankruptcy case and wants to receive all notices and documents filed with the court.
The SEC’s request included statements of financial affairs, disclosure statements and plans, and any matters brought before the court formally, informally, written, and orally.
The request was submitted by the SEC’s office of reorganization in Atlanta, and senior counsel. The agency did not respond to requests for comment.
Under Section 1109 of the bankruptcy code, incorporated into Chapter 9, the SEC is authorized to intervene in a bankruptcy though it is not authorized to appeal any judgment, order or decree of the court, according to an attorney familiar with the code.
“It is not uncommon for the SEC to intervene in a Chapter 11 or a Chapter 9 where the debtor’s obligations include publicly offered securities,” the attorney said. “The SEC has an interest in protecting public investors and ensuring adequate disclosure regarding the plan of adjustment, particularly regarding the treatment of creditors who hold securities.”
The federal regulator could be interested in whether the bankruptcy reveals any facts that were not properly disclosed to investors who bought the bonds, the attorney added.
Jefferson County filed for Chapter 9 on Nov. 9 with $4.2 billion of debt, becoming the largest municipal bankruptcy in the nation.
Objections to the county’s bankruptcy case were due to be submitted by the end of last week. Bankruptcy Judge Thomas Bennett has set aside Thursday and Friday to hold hearings if objections are filed.
A pending ruling on whether the receiver in charge of the county’s sewer system, John Young, remains in place and continues to make debt-service payments on $3.14 billion of outstanding sewer warrants has attracted widespread interest from bond market participants.
The county wants Young removed, and has indicated in court filings that payments on the sewer warrants may cease while the bankruptcy case proceeds.
If the judge sides with the Jefferson County, it could set a new precedent and be unsettling to investors who believed the revenue warrants were secured claims that typically would continue to be paid during a Chapter 9 case, market participants said.
Bennett received final briefs on receivership Dec. 2 and has yet to rule on the receiver’s status. Young was appointed sewer system receiver by an Alabama circuit court judge in September 2010.
The trustee for the sewer warrants, Bank of New York Mellon, sued for the system to be placed into receivership after the county defaulted on the bonds and violated various bond covenants.