Ala. county files largest municipal bankruptcy in US history

J. Arthur Bloom Deputy Editor
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When negotiations with creditors broke down Wednesday, Jefferson County, Ala. filed for the biggest municipal bankruptcy in U.S. history.

After two days of closed-door meetings, county commissioners voted 4–1 to declare bankruptcy after a last-ditch effort to restructure the county’s debt failed, the Birmingham News reports.

The county was facing $4.23 billion in debts. The next largest municipal bankruptcy was the 1994 filing by Orange County, Calif., at $1.7 billion.

“I am disappointed by the commission’s decision today,” wrote Alabama Governor Robert Bentley in a statement, “as bankruptcy will negatively impact not only the Birmingham region, but also the entire state.”

Jefferson County is not necessarily a bellwether for the municipal bond market as a whole, say some analysts, because the county’s financial troubles resulted in part from corrupt business deals that fueled construction debt. Birmingham’s former mayor, Larry Langford, a Democrat, was sentenced to 15 years in prison in 2010 for his role in that corruption.

“With well over 50,000 municipal issuers in the U.S., one, even a big one, is somewhat of a ring-fenced event,” said David Ader, head of government bond strategy at CRT Capital Group LLC, in a statement to his clients. “While certainly a shiver down the back of the municipal market, it is hardly a surprise event.”

Additionally, Jefferson County’s debt represents a small share of the $2.7 trillion municipal bond market.

Still, its filing under Chapter 9 comes on the heels of two other high-profile municipal bankruptcies: Harrisburg, Penn. and Central Falls, R.I. Those two cities faced fiscal troubles in the wake of bad investments and the 2008 financial crisis.

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