Simi’s Name, Not Credit, Tarnished by Default

When Simi Valley issued $15 million in tax-exempt municipal bonds for low- and middle-income mortgages in 1989, nobody could have guessed the mess that would follow.

With proceeds of its bond sales, the city bought guaranteed investment contracts, called GICs, thought to be safe investments. The GICs were placed with Executive Life, a Los Angeles insurance company that collapsed in 1991 after overextending itself in the junk bond market. When it collapsed, the insurer held the liability for Simi Valley’s bonds, which were then in default, a situation that tainted Simi Valley’s name but not its credit rating.

Mayor Greg Stratton says Simi Valley is not liable for the $15 million loss to 1,722 bondholders, who are trying to get part of their investments back with a negotiated settlement between the state insurance commission and the insolvent insurer.

Unfortunately for those bondholders, in February a state appellate court rejected a plan that would have paid back money to various bondholders linked to the Executive Life failure. That settlement would have allowed holders of various bonds from Simi Valley, Whittier and Temecula to recover 85% of their money.

Stratton said the court’s latest ruling “will not affect the city in any way, shape or form.” Trustees for the bondholders are appealing the court’s decision. “We feel a moral obligation to support the appeal by trustees, but this won’t affect us at all,” Stratton said.

Recently, state Insurance Commissioner Chuck Quackenbush, who met with Simi Valley officials, announced that he would provide “full assistance” to bondholders appealing the ruling.