Largest municipal bankruptcy sought in Alabama - $4.1 Billion

On Wednesday (November 9, 2011), Jefferson County Alabama filed for Chapter 9 bankruptcy protection as a result of a poorly thought out sewer infrastructure project.  The project began in the 1990's after a federal court forced Jefferson County to begin an upgrade of its sewer system to meet federal clean water standards.  Like many municipalities do, the project was financed with bonds.  Relying on advice from its outside advisors, the county entered into a very complex financial transaction with variable rate debt and a range of credit swap vehicles.  In addition, the county would later learn that the structuring was fraught with corruption including bribes and influence pedaling.  From there the transaction quickly went downhill when global markets struggled and the variable rate on the bonds went higher.  While several county officials were convicted of rigging the transaction, Jefferson County found itself unable to make the required debt payments.  The Chapter 9 filing was the latest setback in this unfortunate project.

Jefferson County's bankruptcy filing comes on the heels of several other notable filings including Pennsylvania capital city of Harrisburg, PA.