Jefferson County Asks Judge to Clarify Footnote in Sewer Receiver Order
By Steven Church – Jan 19, 2012 10:10 AM ET
Jefferson County (STOAL1), Alabama, asked the judge overseeing its bankruptcy to clarify a footnote in a recent order that’s impeding settlement talks with sewer bondholders owed more than $3 billion.
In a Jan. 6 ruling that limited the powers of a receiver for the county’s insolvent sewer system, U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham added a footnote about an alleged “statutory lien” creditors may claim over the system.
The county argued in court papers filed today that creditors don’t hold such a lien and that a disagreement about the footnote is “interfering with the discussions the court recommended.”
County officials and the trustee for bondholders are in talks about how much of the sewer system’s revenue must be turned over to bondholders. The system doesn’t generate enough money to cover the sewer warrants, according to court records.
Jefferson County filed for bankruptcy in November, more than a year after a state court gave control of the sewer system to John S. Young Jr., a receiver representing bondholders who own the sewer warrants.
Bennett ruled that the county’s bankruptcy ended Young’s power over the system. The county is now in the process of resuming control.
The bankruptcy was filed after the county, state officials, the receiver and bondholders failed to implement a tentative agreement that would have required the sewer debt to be cut by about $1 billion, rates to increase and the Alabama Legislature to enact new laws.
County attorneys argued that Bennett’s footnote may affect any appeal of the sewer receiver order.
In the footnote Bennett said he was “not now determining whether any ‘statutory lien’ was of the nature defined in Bankruptcy Code.”
That could allow creditors to argue that they hold a statutory lien and that the lien is exempt from any limits imposed by the bankruptcy code, the county argued in its papers.
Larry Childs, an attorney for the bondholders’ trustee, didn’t immediately return a call for comment on the filing.
The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).