Tags: Jefferson County | bankruptcy | judge | sewer

Jefferson County Bankruptcy Judge Rejects Sewer Suit Claims

Thursday, 17 October 2013 08:28 PM

Sewer customers of Jefferson County, Alabama, who sued over $3 billion in corruption-tainted bonds can’t collect money in the county’s bankruptcy, a federal judge ruled.

U.S. Bankruptcy Judge Thomas Bennett granted the county’s request to throw out claims related to a pair of lawsuits that threaten to invalidate the sewer-related debt. Bennett’s reasoning may make it easier for the county to end those lawsuits as part of its proposed bankruptcy-exit plan.

Lawyers for sewer customers are trying to save the cases, which target JPMorgan Chase & Co., a Goldman Sachs Group Inc. unit, bond insurers and others over their roles in helping the county issue more than $3 billion in sewer-related debt.

Bennett said the lawyers can press their objections to the county’s bankruptcy-exit plan. Should Bennett approve that plan next month, the county would end the lawsuits as part of a settlement with JPMorgan and other creditors.

At least one of the lawsuits involved an allegation that is “really the county’s claim,” Bennett said today. Under the U.S. Bankruptcy Code, if the county has a right to bring a claim, it also has the right to settle it, even if the claim is part of a lawsuit the county didn’t file.

New Concessions

Also today, county commissioners said they may cancel a $1.84 billion debt-reduction settlement tied to the county’s bankruptcy-exit plan unless creditors offer about $350 million in new concessions.

To end almost two years in bankruptcy, the county reached a deal in June with creditors that hold the majority of about $3 billion in outstanding sewer-system debt. Under that proposal, creditors would split about $1.84 billion in cash instead of pressing for full repayment.

Creditors voted overwhelmingly to support the current plan. Those holding about $3.9 billion of the county’s debt voted in favor while holders of only about $18 million have opposed the plan, county attorney Patrick Darby said in court.

The only “substantive” objections were filed by lawyers behind the two lawsuits, on behalf of their clients, Darby said.

The bankruptcy is tied to a sewer refinancing tainted by political corruption. In 2009, JPMorgan agreed to a settlement with the U.S. Securities and Exchange Commission over payments its bankers were accused of making to people tied to county politicians to win business.

JPMorgan, based in New York, paid the county $75 million in that settlement and has given up more than $657 million in swaps claims it held.

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Sewer customers of Jefferson County, Alabama, who sued over $3 billion in corruption-tainted bonds can't collect money in the county's bankruptcy, a federal judge ruled.
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Thursday, 17 October 2013 08:28 PM
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