UPDATE 1-U.S. judge clears way for vote on Alabama county's bankruptcy plan
* Judge approves financial disclosure statement
* Jefferson County targeting year-end bond deal
* County lawyer says rising interest rates a risk
BIRMINGHAM, Ala., Aug 6 (Reuters) - A U.S. judge on Tuesday cleared the way for Wall Street banks and others owed $4.2 billion to vote on a plan to end the second-largest U.S. municipal bankruptcy.
Creditors must vote by an Oct. 7 deadline as officials of Alabama's Jefferson County plan a year-end bond offering of about $1.9 billion that is needed to pay off current sewer debt bondholders at sizable discounts.
Until July 18, when Detroit filed for municipal bankruptcy with more than $18 billion in liabilities, Jefferson County had been the biggest U.S. local government to seek protection from creditors. Stung by overwhelming sewer debt and diminished revenues, the county filed for bankruptcy in November 2011.
A large majority of Jefferson County's creditors have agreed to the negotiated plan, which promises to deliver only $1.835 billion to sewer-system warrant holders owed $3.078 billion.
Additional funds are needed to cover school warrants and other non-sewer debt.
On Tuesday, after hearing arguments by lawyers representing sewer-system customers that disclosures were inadequate, U.S. Bankruptcy Judge Thomas Bennett approved the massive disclosure plan and set the stage for votes by creditors. If approved by creditors, the plan must still be confirmed at a hearing expected to be held on Nov. 12.
"Ballots go out before the end of this month," Kenneth Klee, the county's lead bankruptcy attorney told reporters. "We will not know the final count until October."
Klee has repeatedly urged quick approval of the workout plan and cautioned that rising interest rates might scuttle the planned refunding offering.
"If interest rates go past a certain point, the county and creditors will come back to the table, and the county will have to ask for concessions," Klee said.