Legal News

Report: Bankruptcy Looms for Jefferson County, Alabama

By Dan Slater

Update: Alabama Gov. Bob Riley offered a plan Friday to restructure its $3.2 billion sewer debt to stave off filing for bankruptcy, proposing to restructure the bond debt at a lower, fixed rate over a longer term. Creditors agreed to respond to the proposal next week and to allow the county to delay any further interest payments at no cost until Sept. 30.

He comes in waves, but there he is: Master Laird, rider of Big Waves, shredding a heavy. And you know what that means, Law Blog Readers: It’s bankruptcy time.

Where is Laird headed next? The wave looks like it’s coming for Jefferson County, Ala., home of Birmingham, the state’s largest city. The WSJ reports that after months of failed negotiations with creditors and counterparties to its troubled sewer debt — which amounts to $3.2 billion! — Jefferson County could face a seemingly inevitable bankruptcy filing as soon as today. If the county defaults it would be the largest-ever municipal bankruptcy.

This morning, a county spokeswoman confirmed to the Law Blog that no decision had been made yet regarding a potential bankruptcy.

A filing, writes the WSJ, would prompt the dusting off of a seldom-used section of the U.S. Bankruptcy Code: Chapter 9, which governs municipalities. Since 1934, when the first municipal bankruptcy legislation was passed, there have been fewer than 600 total Chapter 9 filings, according to law firm Mintz Levin.

So who’s handling this potentially novel filing? The county spokeswoman said Patrick Darby (pictured, right), of Birmingham-based Bradley Arant Rose & White, serves as the county’s lead counsel. Darby (Dartmouth, Washington & Lee law) did not immediately respond to calls.

One aside: If the county does file, it will do so in the Northern District of Alabama bankruptcy court. Venue shopping for bankruptcy, a topic discussed on the LB earlier this week, is not allowed for municipalities.

Full post as published by Law Blog - WSJ.com on August 29, 2008 (boomark / email).