Jefferson County Bankruptcy Conclusion Close with Creditor Deal

What was once the largest municipal bankruptcy filing case (by dollar value ) in U.S. history appears to be winding down.

Jefferson County, AL officials and legal representatives reportedly have agreed with a group of creditors, including JPMorgan Chase, over the massive sewer renovation project-fueled debt that left the municipality financially crippled, paving the way for a quicker than expected exit from Chapter 9 bankruptcy. Various secured creditors will reportedly take a 20%-40% cut of what the county owes them. Insurers could be out as much as 50%. The county will likely retain control of sewer operations.

Jefferson County Commissioners voted in 2010 to file for Chapter 9, with apparent support of Alabama Gov. Robert Bentley. The Chapter 9 filing listed the county’s debts in excess of $4 billion, with most stemming from a sewer system retrofit that turned into a massive and unexpected drain of financial resources. The debt was nearly double the previous record for a U.S. municipal bankruptcy, but has since been eclipsed by Stockton, CA.

This is at least the third time in the last two years that a settlement was agreed upon well after the Chapter 9 court process started. It raises the question of whether more debt-saddled municipalities will look to Chapter 9 as a new strategy to garner negotiating power, be it with suppliers or labor representatives.

-Brian Shappell, CBA, CICP, NACM staff writer

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