ORANGE COUNTY IN BANKRUPTCY : Investors Are Told That Staying Put Is Smarter Than Selling Into Panic : Wall Street: More than 50% of the 100 largest publicly traded O.C. stocks fell. Nearly 25% gained.
To frazzled holders of Orange County-related stocks and bonds, experts offered some simple advice Thursday in light of the bond fiasco that forced the county into bankruptcy: calm down.
Panic selling will make losses a certainty, they said, and harm an investor’s long range interests. Investors should think twice even if they hold bonds of municipalities that invested in the troubled fund.
“To sell now, you could be looking at a 20% loss on an individual bond. That is a substantial depreciation,” said Doug Fabian, co-publisher of monthly mutual fund newsletter based in Huntington Beach.
“What was the original goal when it was purchased, to hold it to maturity? This should not interrupt it.”
The same advice held true for stocks.
“Stocks will not be affected . . . nor will companies’ earnings be affected in any significant fashion,” said Ian Gilson, a stock analyst at Van Kasper & Co. in West Los Angeles.
“This will not send Orange County companies running to set up headquarters in Nevada.”
Most investors were apparently heeding the advice.
There were few sales offers for Orange County bonds Thursday, and the stock prices of companies with connections to the county were relatively stable.
“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.
The tranquillity was especially noticeable in the bond markets, where few holders were willing to part with them.
Bond specialists repeatedly pointed to the record of safety for municipal bonds: even during the Great Depression, fewer than 1% of municipal bonds failed to pay back their bondholders.
“My first reaction to the bonds would be to sit tight and don’t worry,” said W. Peck Ferrin, head municipal bond trader for Bank of America in San Franciso. “If there is a revenue stream tied to the bonds, there should be no problem.”
Revenue bonds, as they are called, are among the safest because they are backed by a specific revenue stream, like a special tax or fee, that keeps them separate and distinct from most of the troubled county bond pool.
Revenue bonds are “a reasonable speculation. Let’s put it that way,” said Robert Gore, a bond trader for Crowell, Weedon & Co. in Los Angeles.
So reasonable, in fact, that potential investors continued to swirl around the fringes of the Orange County financial disaster, ready to snatch up some of the better Orange County bonds if panic selling developed.
“What I have seen is very sophisticated buyers saying that if things get out of hand, call me,” Ferrin said.
Potential buyers were offering bids as low as 48% below the previous trading value of the bonds, but bondholders were staying put.
There was some movement among county-related stocks Thursday, but nothing dramatic, given the steep falloff on Wall Street generally.
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. A few companies said that their stock prices were swinging in response to the bond news.
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 stock closed down $2.63 at $18 on Nasdaq.
“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.”
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.”
