O.C. Settlement Support Given; Judge’s OK Is Next

Clearing a major hurdle in the race against further fiscal calamity, Orange County gathered enough support Wednesday for a settlement plan that distributes the $5.7 billion in its collapsed investment pool to send the deal to court for a judge’s stamp of approval.

Schools, cities and other agencies controlling about $600 million in pool assets voted Wednesday to support the complex reimbursement plan, surpassing the requirement that 80% of the investors holding 90% of the money endorse the deal.

If U.S. Bankruptcy Judge John E. Ryan approves the agreement after a May 2 hearing, agencies could start receiving their cash in about five weeks.

“It’s been a very arduous process. We’ve worked long hours. I’m very pleased,” said Irvine City Manager Paul O. Brady Jr., vice chairman of the seven-member committee that brokered the deal.

“Even though it’s not the best agreement that we could have hoped for, it’s the only agreement on the table,” Brady said in an interview. “If we want to move on, this is the time to do it. Let’s get our money out. Let’s get on with our lives. We’ve got other things to do.”

The vast majority of the 173 entities that have already voted on the deal--including all schools involved--selected Option A, which prevents them from suing the county but returns an average of 77% in cash. They would receive another portion in so-called recovery notes that the county has promised will be converted to cash by June 5, and a variety of IOUs for the rest.

“This is the plan that promises the full pay back of the money we have in the pool and an early payout,” said Gary Streed, director of finance for the Orange County Sanitation Districts, which had $454 million in the pool and pushed the deal over the top by selecting Option A on Wednesday night. “It lets us get back to what we’re supposed to do.”

Fifteen agencies--four of them cities outside Orange County--have chosen Option B, which pays them only the average of 77% in cash but preserves limited rights to sue the county for more.

“With Option A, you have to trust Orange County . . . I don’t trust Orange County,” said Claremont Mayor Algird Leiga. “I think we are dealing with massive fraud. We want the right to litigate. . . . With Option A, you sign away all your rights.”

Only two groups have so far rejected the offer altogether, opting against getting back their cash but retaining all legal claims against the county. Those include the ability to test the legal theory that the county held their money in trust and must repay them in full before taking a penny for itself.

“We are going ahead and pursuing the trust theory,” said Keith Coolidge, public affairs manager for the Municipal Water District of Orange County, which rejected the plan along with the Buena Park Redevelopment Agency. “I think we can win on the trust theory.”

Officials on both sides of the negotiating table said they were pleased with the results, noting that most agency representatives endorsed the detailed agreement, which is designed to eventually reimburse 100% of their investments, plus interest.

“We got the cash out in a hundred-and-some-odd days, which is lightning speed for a bankruptcy,” said Jon Schotz of Saybrook Capital Corp., the financial adviser to the pool participants committee.

“We’re very pleased. It’s obviously a major step in the case,” agreed Bruce Bennett, the county’s lead bankruptcy attorney. “However, a lot of work remains to be done. We’re passing a milestone, but we’re in a marathon.”

While investors have until Tuesday to vote on the settlement plan, a review by The Times shows that a sufficient number of agencies have already approved it to send it to Ryan, who has scheduled an all-day session on the matter May 2.

According to the settlement documents, 229 entities outside the county had a total of nearly $4.9 billion in the failed pool when Orange County filed for bankruptcy protection Dec. 6. To make the deal work, 183 entities controlling at least $4.4 billion must vote for either Option A or B.

So far, 173 groups holding $4.33 billion have supported the plan. But another $79 million belongs to some 20 agencies controlled by the Board of Supervisors. Those agencies’ ballots have yet to be returned, but the supervisors are, in effect, offering the deal and are therefore sure to sign on.

That pushes it over the top.

“It’s great news that we’ve hit the 80-90 mark,” said Stan Oftelie, chief executive of the pool’s largest investor, the Orange County Transportation Authority, which had more than $1 billion invested when the county declared bankruptcy.

But Oftelie, who chairs the pool committee, and others were hesitant to celebrate, noting that there are more steps to come.

First, Ryan must approve the agreement. Then there is an 11-day grace period during which pool investors can switch options and the agreement is subject to challenge by an appeal filed in court. After that, the county has five days to start releasing the cash.

“It’s just another step. I’m not going to be psyched until we get the money,” Oftelie said. “This is an important step. We have positive momentum going into the hearing, but I expect there will be people blindsiding (us) every step of the way in this process.

“The magic day,” he added, “will be when the dollars are released.”

Times staff writer Steve Scheibal and correspondent Alan Eyerly contributed to this report.

* HOW O.C. CITIES VOTED: How various government agencies voted on two options offered by the county. B2-3

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Willing to Settle

The settlement involving Orange County and some 200 schools, cities and other agencies with money in its collapsed investment pool has the support necessary for approval. If U.S. Bankruptcy Judge John E. Ryan approves the deal after a May 2 hearing, agencies have 11 days to switch options. The county then has five days to begin repaying investors from the $5.7 billion left in the pool.

OPTION A

* Chosen by vast majority of agencies and all school districts.

* Precludes right to sue county for additional money.

* Pays an average of 77% in cash.

* Schools also receive 13% in “recovery notes,” which county promises to make cash equivalent by June 5.

* Other agencies receive 3% in recovery notes.

* All agencies receive IOUs for the remainder

OPTION B

* Agencies receive an average of 77% of investments in cash

* Agencies retain most litigation rights against county.

Agencies selecting Option B; amounts in millions: Amount in pool Buena Park: $18.0 Claremont: $5.4 Costa Mesa: $2.6 Costa Mesa Redevelopment Agency: $0.5 Fountain Valley: $6.0 Fountain Valley Community Development Agency: $24.9 Huntington Beach: $43.6 Montebello: $33.5 Montebello Redevelopment Agency: $13.6 Mountain View: $39.8 Santa Barbara: $25.7 Santa Barbara Redevelopment Agency: $11.8 Tustin: $0.2 Yorba Linda: $7.0 Yorba Linda Redevelopment Agency: $6.5 ***

OPTION C

* Agency rejects settlement agreement.

* Agencies receive no cash and retain all legal rights against county.

* Unlike those choosing Option B, these agencies can test the legal theory that the county held their money in trust and must repay all of it before taking any for itself.

Agencies selecting Option C; amounts in millions: Amount in pool Buena Park Redevelopment Agency: $11.0 Orange County Municipal Water District: $4.5 Source: Orange County Investment Pool Settlement Agreement; Times reports