Alabama County Files Largest US Municipal Bankruptcy

Alabama's most populous county chose bankruptcy as a path to wrest control of its beleaguered sewer system from a court-appointed receiver, bolster its pleas for legislative action to prop up a massive revenue shortfall, and wipe away as much of its whopping $4.15 billion in debt as possible.

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Jefferson County's Chapter 9 bankruptcy protection filing on Wednesday — the largest municipal bankruptcy in U.S. history — gives it protection from its creditors while it develops and negotiates a plan for adjusting its debts. It could accomplish that by extending debt maturities, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan.

But there are risks. Perhaps the biggest is the potential impact on the county's 658,000 residents, who could be asked to endure even higher sewer rates than were contemplated under the out-of-court deal with creditors that fell through. That's because the sewer debt, which represents the bulk of what the county owes, is secured against net revenues from the sewer system, and the court will determine how much of that debt remains on the books and how the county will repay it.

Unrestricted revenue in the county's general fund totaled only $152.5 million in the fiscal year ended Sept. 30.

"The county did not file this case rashly, improperly, or with any improper intent," its lawyers said in court papers. "Rather, it did so deliberately and grudgingly, yet with the desire to effect a prompt, efficient adjustment of its debts."

The problems were years in the making.

Its debt ballooned after a federally mandated sewer project was beset with corruption, court rulings that didn't go its way, and rising interest rates when global markets struggled.source cnbc