ORANGE COUNTY IN BANKRUPTCY : Do Ratings Agencies Share Blame for Fiasco? : Wall Street: Questions are being raised as to whether major credit-ranking services are reliable judges of municipal investments.

Orange County’s financial disaster has raised questions about whether major Wall Street credit-rating agencies are reliable judges of municipal investments.

Ratings on $1.58-billion worth of Orange County bonds were slashed to non-investment grade levels Wednesday by Standard & Poor’s Corp., and Moody’s Investor Service lowered its rating on some of the county’s sanitation districts commercial paper to “not prime.” But several municipal bond investors called it too little, too late.

“Many of our members have called us wondering where the rating agencies were. It’s a logical question,” said Betsy Dotson, an assistant director with the Government Finance Officers Assn. in Washington. “Some of these losses may have been avoided if the rating agencies had spotted problems earlier.”

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The pace was feverish in downtown Manhattan Wednesday as rating analysts struggled to extract information from unavailable authorities. Reportedly, 50 Moody’s analysts were poring over records, while others at the company were preparing to fly to California to meet with Orange County officials. At Standard & Poor’s, the pace was equally chaotic as it also prepared for meetings today.

Richard P. Larkin, a managing director with Standard & Poor’s in New York, said he couldn’t think of another municipal bond issuer that had ever fallen so rapidly from investment grade ratings of “AA” to “C.” He said Orange County’s bankruptcy filing took everyone by surprise.

“We didn’t foresee it,” he said. “And though we knew bankruptcy was a legal option, we didn’t think it was a real possibility. The county crossed a very big line yesterday.”

Officials from both companies said they hoped to get some answers today.

“There’s just so much information to collect, but hopefully, tomorrow we will get more,” said David Brodsly, a director with Moody’s in San Francisco. “We are carefully reviewing the information provided to us by the county in the past. I’m certain this will have a tremendous impact on the municipal market going forward.”

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Rating analysts said they were reassured by Orange County in September, when they were told there was more than $1 billion in cash on hand in the county’s investment portfolio. In retrospect, officials said, they should have asked for more information.

“There’s a lot of soul-searching going on,” said one rating official who asked not to be named. “It’s like when you’re in a crowd and someone gets shot, you always wonder if you could have done something to prevent it. This is a huge event that is going to affect our careers and our business for a long time.”

Critics of the rating agencies say that even as the Orange County fund started to lose $1.5 billion in value this year, the agencies maintained their high ratings on debt sold by Orange County and 180 other cities, school districts and agencies.

For example, Moody’s gave Orange County a glowing review this summer on a bond issue, without pointing out all the risks in the county’s investment policy.

“I’d be lying if I told you we put every issuer through the wringer when it comes to their investment strategy. . . . I think we will all start to ask more questions,” said Amy Doppelt, senior director at Fitch Investors Service in New York, another nationwide bond-rating service.

Fitch does not rate Orange County bonds.