BIRMINGHAM, Alabama -- Bankrupt Jefferson County and creditors owed billions for sewer-upgrade borrowings have agreed to allow the sanitary system to use reserved cash balances to fix broken and billaging pipes still leaking after more than ten years into a court-supervised $3.2 billion repair program.
The agreement came during a hearing today in U.S. Bankruptcy Court in Birmingham. Creditors owed $3.2 billion for lending on sewer repairs starting in 1996 were opposing the use of cash balances for upkeep; the county said today repairs were incumbent.
"We have sewage backing up in the street," said county attorney Patrick Darby, of the Birmingham firm Bradley Arant Boult Cummings. "There is actual need under environmental laws."
Creditors said in court papers they wanted greater control of the sanitary system's monthly surplus revenues, the amount left after operating expenses.
A compromise was reached during a mid-morning break at today's hearing:
</arrow>The county will be allowed to use some of about $38 million in a bond escrow fund for repairs deemed of immediate importance.
</arrow>The county will wire about $5.4 million tomorrow to bond holders.
</arrow>An earlier agreement on the division of monthly revenues will be extended, with debt holders continuing to get about $5.5 million a month.
The hearing, now adjourned, was held today because Syncora Guarantee, a New York-based firm that insured some of the county's $3.2 billion in defaulted sewer bonds, asked U.S. Bankruptcy Court in Birmingham for an order directing surplus monthly revenues to be used for payment to debt holders, not repairs.
The county's pipes and appurtences are the collateral of the creditors. They agitated in 2010 for the court-appointment of a sewer receiver, saying the decrepit system required professional maintenance and oversight.
The sewer system takes in about $13.4 million a month from 150,000 ratepayers, not nearly enough to pay for all expenses, capital costs and debt service. That led to the largest U.S. Chapter 9 bankruptcy last year, after years of payments defaults and corruption convictions against elected officials and contractors.
The county started borrowing heavily in 1996 to finance the construction and repair of a leaking sewer system that was under federal oversight for pollution violations.