March 20 (Reuters) - A slew of banks are seeking to overturn a March 4 ruling by a federal court judge that allowed Jefferson County, Alabama, to proceed with its $4.23 billion municipal bankruptcy case.
The creditor banks, led by Bank of New York Mellon, the bond trustee for sewer debt issued by the county, filed a motion on Monday seeking leave to appeal the ruling. Bond insurers Financial Guaranty Insurance Co. and Assured Guaranty Municipal Corp. also filed separate motions to appeal.
They have argued that the county, home to Alabama’s biggest city of Birmingham, is ineligible for Chapter 9 bankruptcy because it has no bond debt as required under state law. Like most Alabama counties, Jefferson County only issued warrants, a form of debt popular in the state since the 1930s that does not require direct voter approval.
The use of warrants led a federal judge to reject a 2010 bankruptcy case involving Pritchard, Alabama.
But Judge Thomas Bennett, in his written ruling, concluded Jefferson County was insolvent and had negotiated in good faith to adjust its debts, clearing the way for the biggest bankruptcy ever by a U.S. municipality.
The county’s debt escalated in the mid-2000s when warrants issued to upgrade its sewer system soured amid widespread corruption, bribery and fraud charges that led to some 22 convictions. Costs continued to rise as interest rates increased.