Federal judge approves Jefferson County plan to end bankruptcy

November 21
9:14 PM 2013

A federal judge approved the bankruptcy exit plan of Jefferson County, Alabama in a hearing on Thursday, November 21. Judge Thomas Bennett of the US Bankruptcy Court in Birmingham, Alabama cleared the county's plan to almost halve its USD 3.1 billion sewer debt. The plan involved a repayment strategy for its sewer bond debt and the cost-cutting measures implemented by officials after Jefferson County declared bankruptcy in 2011.

The exit plan was made around the USD 1.4 billion worth of bond breaks that officials were able to negotiate with creditors. The bondholders started extending the money in 1997 to fund projects that would prevent sewage from going to the county's rivers. The repayment period will last for more than 40 years and would total USD 6.7 billion. The largest payments to creditors will be made near the end of the repayment period in 2053.  Officials said the sewer debt payments for the first ten years need to be lower in the first decade so that the county will still have money to fix the sewer system which has still not met the standards of federal environmental law.

The confirmation was given after 14 hours of arguments mainly given by two activist lawyers who asked if Jefferson would be able to afford the USD 1.7 billion that the county owes. The attorneys said the county residents and businesses were already burdened by rising sewer bills. They stand to pay even more under the restructuring plan. Meanwhile, Jefferson County officials argued that the additional cost may be covered by an increase in the population. Later on, future leaders could also negotiate for a more affordable deal with investors when the county's financial situation improves.

Judge Bennett ruled that the plan is affordable. He also did not see any problem with the decision to ask for bigger payments later on. He said, "Absent that, the rates would be even higher today."

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