(Reuters) - The judge in the landmark bankruptcy of Alabama's Jefferson County sided with Wall Street creditors on Friday and sharply limited how the cash-strapped county government can use funds generated by its sewer system.
Ruling in a months-long court dispute over the size of payments to owners of about $3.2 billion of sewer-system debt, U.S. Bankruptcy Judge Thomas Bennett said the county cannot pay legal fees and set aside charges for depreciation and amortization from net operating revenues owed to creditors.
Creditors such as Bank of New York Mellon and JPMorgan Chase had argued that the county had been illegally using money for other purposes. The county claimed it needed the money for repairs and other capital expenses.
Jefferson County, the home of Birmingham, the state's business hub, filed a $4.23 billion bankruptcy claim - the largest ever by a U.S. local government - on November 9.
Attorneys for the county and the creditors had been operating since February under a temporary deal, under which the county paid $5.5 million a month of the sewer system's net revenues to creditors.
In April, the county skipped a $15 million general obligation bond payment for the first time, as officials said they needed the money to pay for basic government services.
(Reporting by Michael Connor in Miami; Editing by Jan Paschal)