O.C. and Pool Participants Fail to Nail Down Accord

Although they labored throughout the weekend to put finishing touches on the conceptual agreement announced last Friday, Orange County and the committee representing participants in its collapsed investment pool failed to come up with an acceptable settlement plan Monday.

“We wanted to have it done today, and we won’t,” sighed Stan Oftelie, chief executive of the Orange County Transportation Authority, who chairs the committee representing cities, schools and special districts that had money in the pool when it declared bankruptcy Dec. 6.

“This is disappointing,” Oftelie said, “but we think it still could be resolved.”

Accountants working for the investors committee told county bankruptcy attorney Bruce Bennett late Sunday that the deal was done and only tiny technicalities, if anything, would need adjustment Monday.

But when the seven-member committee representing pool investors met Monday afternoon to review what was supposed to be the final draft of Bennett’s 60-page agreement, they hit a snag and ended up sending their lawyers back to work on the agreement’s wording. The committee plans to meet again at 3 p.m. today.

Pressure to close the deal has intensified in recent days because of looming court hearings and a fear that some school districts might run out of cash by month’s end. Oftelie, however, refused to rush the $5-billion deal Monday.

“With those kind of numbers, you take an extra day to work things out,” he said. “We’ll make it by the end of the week.”

Bennett, who toiled on the agreement past midnight Saturday and until 2:30 a.m. Monday, was dumbfounded by the turnaround.

“I am quite surprised that there are issues of economic substance being raised at this late hour by the committee,” he said. “We were told by the committee’s professionals that an agreement had been reached.”

Though Bennett and the other county consultants have rewritten the document half a dozen times--at least three of them last weekend--the deal does not differ drastically from one brokered last month by local business leaders.

If it is approved, all investors would receive 77% of their investments back in cash immediately. Schools would get an additional 13%, and other investors 3%, in county-issued “recovery notes” that are supposed to be immediately convertible into cash. The cities and special districts would get their next 9% from the proceeds of the county’s litigation against Merrill Lynch, the giant Wall Street brokerage firm that sold Orange County the risky securities that caused the financial collapse.

Finally, the county would make its “best effort” to repay the remaining balances--10% for the schools and 11% for the other investors--over an unspecified period of time.

To sign up for that repayment plan, investors must promise not to seek more money through litigation. Those who want to retain their rights to sue can take the 77% in cash, but nothing else. Investors that reject those two options would not receive any cash.

“The county has nothing more to give,” Supervisor William G. Steiner said Monday. “They can take it or leave it.”

Committee members said they agree with the county on scores of numbers contained in the settlement deal but still want to haggle over some of the wording.

The main issue, Oftelie said, is how the county plans to make the recovery notes “as good as gold,” a phrase that has been bandied about in the negotiations.

“That was something we thought was resolvable, but it didn’t get resolved,” Oftelie said. “We got some strong assurances from the Orange County Business Council and the County of Orange, but those assurances were not in there.”

Bennett said Monday that the “good as gold” concept came from the committee, not the county.

Originally, some of the pool’s larger investors had offered to buy the recovery notes from the schools, which needed cash most. But that idea collapsed, and other investors demanded that they too be able to cash in the notes immediately.

The county is now negotiating with the state to either buy the notes, or back a loan so the county can buy them and is also trying to get a bank to help make the notes salable on the public market.

Another sticking point is the requirement that investors release the county and its employees from liability in order to get full repayment. Over the weekend, members of the pool committee, their attorneys and financial advisers were added to the list of people who would be protected from legal action, which irked some investors.

“I just think it’s wrong to have those releases in there now as broad as they are,” said Mountain View City Atty. Michael Martello, who represents non-Orange County cities on the committee. “I have a real ethical problem with that.”

Once the committee signs off on the agreement, it still must be approved by the County Board of Supervisors and 80% of the pool’s investors holding 90% of the assets in the pool. Next, U.S. Bankruptcy Judge John E. Ryan must agree to the plan. Only then would individual investors choose between the two options of the plan and get their cash.

Attorneys and accountants from both sides spent dozens of hours this weekend holed up in Bennett’s Los Angeles law office in what they believed would be the last phase of the negotiations.

But when the agreement papers were printed, the committee was left shaking its collective head: “No.”