ORANGE COUNTY IN BANKRUPTCY : Crisis Could Force Some Money Funds to Cut Share Prices

Shock waves from Orange Couny’s bankruptcy continued to rile financial markets Wednesday: Federal regulators said privately that it is highly possible that one or more money market mutual funds stuck with county debt will have to mark down their share prices.

Money funds strive to maintain $1 share prices so that they can be marketed as “safe” short-term cash accounts. But in September, a small institutional money fund became the first in fund history to “break a buck” in share price because of losses on short-term investments that went awry.

Now, with many money funds owning small amounts of taxable or tax-exempt Orange County notes or debt, the possibility of additional--if minor--fund losses has risen.

A federal bankruptcy court trustee working on the county case said Wednesday that certain money market funds have been listed as creditors of the county, but the funds weren’t named.

Experts note that about a dozen major fund groups, among them Putnam Investments, Franklin Resources, Alliance Capital Management and Benham Group have already said they would cover any money-fund shareholder losses incurred because of Orange County debt in their funds.

Kemper Mutual Funds said it owns $198 million of Orange County notes in five of its taxable money funds. Like other major fund firms, Kemper said it will step in if necessary to keep the funds from falling below $1 a share.

Still, “The biggest worry is that a smaller (fund company) won’t have the financial resources” to bail out its funds, said Ralph Norton at fund tracker IBC/Donoghue Inc. Federal regulators have indicated that may well happen in coming weeks or months.