Investors Beat a Path to O.C. Toll Road Bonds

In one hour Wednesday, the Foothill/Eastern Transportation Corridor Agency sold $1.26 billion of toll road bonds, despite the cloud of uncertainty hanging over bankrupt Orange County.

The success of the financing--it is the largest issue sold in the municipal bond market this year--is a signal that Wall Street investors are welcoming Orange County debt. On Tuesday, the city of Anaheim sold $22 million of notes by paying extra to get them insured.

The transit bonds will finance construction of a 24-mile toll road connecting the Riverside Freeway near Anaheim to the San Diego Freeway in Irvine. The project is expected to be completed in 1999, and the bonds will be paid off with tolls collected over 40 years.

The bonds will also help finance a five-mile segment of the Foothill Tollway, a portion of which is already operating.

The long-awaited financing is the most ambitious one to be planned by an agency in Orange County since the county government filed for bankruptcy protection Dec. 6.

“It was a riot,” one New York bond trader said. “There was an oversupply of buyers. A lot of people have been waiting for this financing, so there was a lot of money for it.”

The bonds were priced by a team led by J.P. Morgan Securities with a 7.06% yield, the rate the transit agency was hoping for. The benchmark 30-year U.S. Treasury bond was yielding 6.65% on Wednesday, making the toll road bonds attractive to yield-hungry investors.

One top money manager opted to sit on the sidelines, though, citing the “cloud of uncertainty” over Orange County.

“Until I get a clear idea of what Orange County is going to do with its situation and the vote is taken on the sales tax, I decided to sit back and wait,” said Joe Deane, manager of a $600-million California municipal bond fund for Greenwich Street Advisors in New York.

Environmentalists criticized the sale, urging buyers to boycott the toll road bonds because plans call for the road to cut through the coastal habitat of the gnatcatcher, an endangered bird.

“We think it’s plain wrong to be selling these bonds at this time when Orange County is in financial trouble,” said Connie Spenger, president of Friends of the Tecate Cypress.