September 14, 2012
By: John Clark
Jefferson County, Alabama, will present a comprehensive bankruptcy exit plan by the end of the year, a key official for the downtrodden county told Wall Street Journal.
The county, which is home to more than 650,000 residents, made history a few months ago by filing the largest Chapter 9 bankruptcy case in the history of the United States.
And the case could take several months, but County Commission President David Carrington told sources this week that the county is on pace to complete its proposed reorganization plan by the end of 2012.
To meet this timetable, the county will "have to have some cooperation from creditors," according to Carrington, but with such support, he believes Jefferson County could leave bankruptcy protection by June 2013.
While residents of the county are certainly eager for a bankruptcy exit, the county’s bondholders have been the most powerful voices behind the push to expedite the bankruptcy process.
These bondholders, along with several Wall Street financial firms, gave the county a $3.6 billion loan several years ago for the construction of a new sewer system. This sewer system renovation, however, proved to be a financial disaster.
And bondholders accused the county of dragging its feet when it refused to raise taxes on residents to help pay for the cost of the sewer repairs. The tax hikes, though, were shelved in 2008, when the American economy was stymied in a prolonged recession.
Of course, the county has its own incentives to leave Chapter 9 bankruptcy as quickly as it can. The case reportedly costs Jefferson County roughly $1 million each month.
Before the county can close its case, it will have to reach an agreement with most of its 1,300 creditors, and the county’s bankruptcy attorney told reporters that negotiations could continue past the proposed date for the submission of the final plan.
In order to avoid having to shut down the local government, the county had to fire more than 1,000 municipal workers in the last few months. And the county is desperate to finish its bankruptcy case, because these firings have "severely" limited its "ability to perform its core governmental functions."
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