ORANGE COUNTY IN BANKRUPTCY : Debacle Produces Mixed Reaction of Panic Selling, Bargain Shopping : Wall Street: More than 50% of the 100 largest publicly traded O.C. stocks fell. Nearly 25% gained.
Orange County’s financial debacle produced a mixed bag of winners and losers Thursday on Wall Street, with investors shopping for municipal bond bargains and bond insurers betting that a windfall of new business would outpace their losses.
A construction company watched its stock price drop after announcing that funding of a toll road it is building might be jeopardized. But a real estate investment trust’s stock recovered when it assured investors that its fortunes are not tied to the county’s $18.5-billion investment pool.
For the most part, however, Orange County-based businesses said their stocks--and more importantly, their operations--were so far unaffected by the county’s filing for protection from creditors in U.S. Bankruptcy Court.
More than half of the 100 largest publicly traded corporations based in Orange County had lower stock prices Thursday, while nearly a quarter gained in price. The rest were unchanged. The modest losses, however, appeared unrelated to the bond crisis.
Shares of computer maker AST Research Inc. in Irvine, for instance, were down $1.13 to close at $14.75, and Costa Mesa drug maker ICN Pharmaceuticals’ stock dropped $1.25 to close at $17. But Landmark Bank of La Habra saw its shares increase 75 cents to close at $9.
“I have talked to quite a few business customers and they don’t seem overly concerned,” said David McCoy, executive vice president of Southern California Bank, the largest county-based bank with more than $400 million in assets.
Some companies were indeed feeling the heat from their Orange County ties.
Shares of Granite Construction Inc. of Watsonville dropped 12.7% after it announced that part of the bond paying for a San Joaquin Hills toll road project, on which it is a major contractor, was invested in the county pool run by former Treasurer-Tax Collector Robert L. Citron.
“The market is reacting to the Draconian scenario in which construction would stop permanently in the middle of next year. We think that is unlikely,” said Michael Lawson, a spokesman for the contractor. “We let our investors know that although the transportation agency invested with Citron, we have not gotten a work stoppage order.”
Shares of Granite, a company that gained notoriety for demolishing sections of the quake-damaged Golden State Freeway earlier this year, closed down $2.63 at $18 on Nasdaq.
But the Irvine Apartment Communities real estate investment trust, which lost nearly 5% of its value Wednesday on rumors that it was linked to the bankruptcy, saw a rebound on Thursday. Its shares regained 4.3% to close at $15.25.
“There was some panic selling” Wednesday, said Dick Moran, chief financial officer. “Today, Wall Street realized that the effect was more on governments and not so much on private companies. We think the panic was momentary and it seemed to pass.”
Analysts seemed satisfied, too. “They told us they were free and clear” from Orange County’s troubles “and we have to take their word on that,” said Cathy Creswell, an analyst who follows Irvine Apartment Communities for Alex. Brown & Sons in Baltimore.
The bond market remained poised again Thursday for any panic selling by worried bondholders, but as in previous days, few sales materialized.
“We have heard of a lot of bids out there today but no trades taking place,” said Rich Ciccarone, director of municipal research for Kemper Securities in Chicago. Potential buyers were offering bids as low as 48% below the previous trading value of the bonds, but bondholders were staying put.
“What I have seen is very sophisticated buyers saying that if things get out of hand, call me,” said W. Peck Ferrin, chief municipal bond trader for Bank of America in San Francisco.
The Orange County trouble was expected to give a boost to bond insurers, those companies that provide protection against payment defaults for public agencies that issue bonds.
John Cathey, spokesman for the bond insurer Ambac Inc. in New York, said the Orange County bond crisis could expose his firm to potential losses of $17 million, but the new business could far outweigh the payout.
“There is definitely a silver lining for us,” he said.
Investors are going to demand higher security when they buy municipal bonds, he said, and that will cause more public agencies to see insurers to boost their ratings.
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Times staff writers Ross Kerber and Tom Mulligan contributed to this report.
