U.S. Bankruptcy Judge John E. Ryan approved the county's request Monday to make $3.66 million in interest payments on short-term county bonds, calling the measure critical to reassuring anxious bond markets and paving the way to re-establishing the county's credit.
"I don't think there can be any real controversy with this request," Ryan said. "The county will need to resort to capital markets to resolve its problems. It's good business judgment to pay interest on outstanding bonds to the extent it can."
The ruling came despite opposition by the City of Huntington Beach, whose attorney questioned what funds the county is using to make the bond payments. The attorney, Edward Rasch, said the city would oppose the county's withdrawing money from its general fund account in the bankrupt Orange County investment pool, because the city believes it may have its own claim on those funds.
Huntington Beach and four other cities have asked Ryan for permission to sue the county in state court to recover their investments in the collapsed pool.
Rasch also accused the county of failing to keep the city and other county investors sufficiently informed about county accounts and payments.
"The county is simply playing hide the ball," Rasch said. "It's terrible. We bondholders are suffering deeply over the county's inability or refusal to relay financial information."
County bankruptcy attorney Lee Bogdanoff said the interest payments due in March on four bond issues worth $806 million is not coming from the bankrupt county pool. Rather, it is being paid from fees and revenues that have come into county coffers since Orange County filed for bankruptcy in December, he said.
Bogdanoff also denied that the county is trying to keep critical financial information from its investors.
"We're more than willing to sit down with Mr. Rasch and explain anything," Bogdanoff told Ryan. "He may not like all the answers, but they are available."
Bogdanoff also argued that making the payments is important to the county's ability to get future financing from the municipal bond market. The decision by county attorneys and officials was not made lightly given the county's tight cash situation, he said.
Bogdanoff said the county is confident it will be able to pay for health, safety and welfare services for its residents through the end of the fiscal year.
"But cash reserves are tight," he said. "We have to manage each dollar."
One reason the county is not withdrawing the interest payments from its pre-bankruptcy $84-million general fund account, one of about 600 accounts it has in the pool, is because the county has reached its 30% limit on withdrawals from that particular account, he said.
In late December, the county and other pool investors agreed on a plan that allows them to withdraw up to 30% of their individual investments in the county fund with an overall cap of $1 billion.