Alarm hits US as county seeks $5bn bankruptcy

City A.M. Reporter
LEGISLATORS in Alabama’s Jefferson County yesterday voted 4 to 1 to file for bankruptcy court protection in what would be the biggest municipal bankruptcy in US history.

Despite a tentative deal with creditors reached in September to settle $3.14bn (£1.97bn) of debt, county commissioners this week resurrected the threat of a Chapter 9 bankruptcy filing because the estimated savings from the agreement had shrunk by about $14m. The filing could add to concerns in the $3.7 trillion US municipal bond market, which has recently been hit hard by the debt crisis in Pennsylvanian capital Harrisburg.

Creditors reached a tentative deal with the county in September calling for Jefferson County’s sewer-system debt to be substantially reduced, but final terms were not reached.

Since 2008 Jefferson County has teetered on the edge of a bankruptcy that would surpass that filed by Orange County, California, in 1994.

Jefferson County’s debt escalated in the mid-2000s as it sought to refinance an upgrade of its sewer system. Should Jefferson file Chapter 9 bankruptcy, at over $5bn for the county’s total indebtedness, it will be the largest municipal filing in US history.