O.C. Tollway Bonds Go Fast on Wall Street

In a blowout sale with strong demand from buyers, the Foothill/Eastern Transportation Corridor Agency sold $1.26 billion worth of toll road bonds in an hour Wednesday despite the cloud of uncertainty surrounding bankrupt Orange County.

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

The transit bonds, to be paid off with tolls collected in the next 40 years, will finance construction of one of several major toll roads proposed for California. The 24-mile Orange County toll road will connect the Riverside Freeway near Anaheim to the San Diego Freeway in Irvine, and is expected to be completed in 1999. The bonds will also fund a five-mile segment of the Foothill Tollway, a portion of which is already operating.

The long-awaited financing was the most ambitious planned by an agency in Orange County since the county government filed for bankruptcy on Dec. 6.

“It was a riot,” said one New York bond trader. “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 that the transit agency was hoping for. The benchmark 30-year U.S. Treasury bond was yielding 6.65% Wednesday, making the toll road bonds an attractive buy for investors.

Still, one top money manager, Joe Deane, manager of a $600-million California municipal bond fund for Greenwich Street Advisors in New York, opted to sit on the sidelines, citing the “cloud of uncertainty” over Orange County.

“My decision had nothing to do with the toll road,” said Deane. “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. It’s just prudent.”

And environmentalists criticized the sale, urging buyers to boycott the toll road bonds because the planned road cuts through coastal sage habitat of the California 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 the Friends of the Tecate Cypress. “This is environmentally sensitive land we’re talking about. People should put their money somewhere else.”

However, other buyers found the bonds so attractive that the entire bond issue was oversubscribed with up to five buyers bidding for each block of bonds, officials said.

Because the bonds are exempt from state and federal taxes, an investor in the 36% federal tax bracket who bought the bonds would enjoy the equivalent of an 11% taxable yield.

Citing tax reasons, the agency said it plans to sell an additional $245.6 million of variable-rate toll road bonds on June 19.

“The sale went marvelously,” said Wally D. Kruetzen, executive vice president at the agency. “This financing is dependent on a good, strong economy in Orange County, and it’s clear that buyers believed in that.”

County Chief Executive Officer William J. Popejoy said he was pleased with the bond issue, but did not think its success should entice people to think that a sales-tax increase now is unnecessary.

“The transportation agency is not in debt for $2 billion; the county is,” Popejoy said. “Unfortunately, the county of Orange has some financial difficulties of considerable magnitude, and our situation will be viewed differently by the bond market.”

Bruce Whitaker, spokesman for the Committees of Correspondence, a vocal anti-tax group, said the rush on bonds is a sign that the county will recuperate.

“Orange County had a one-time hit in the bond crisis, and there really isn’t any structural damage economically,” Whitaker said.

The bonds were rated the lowest investment-grade rating by Fitch Investors Service and Standard & Poor’s Corp.

In February, 1993, another related agency, the San Joaquin Hills Transportation Corridor Agency, successfully sold $1.2 billion in revenue bonds for a 15-mile toll road in South County that is expected to be finished in 1997.

While California has had a recent history of freeways, with the emphasis on free , in California’s early days tollways were many.

In 1863, California had more than 80 privately run toll roads, mostly in mining counties, in addition to 80 toll bridges and 111 ferries.

Now, the portion of the privately built and operated 17-mile drive in Monterey in the only toll road in California besides the 7.6-mile stretch of the Foothill toll road between Irvine and Rancho Santa Margarita in Orange County. The toll is $1.

* MORAL VICTORY: Timing foils plan to issue cheaper bonds for IOUs. A18

* PANEL BACKS MEASURE R: Committee representing investors says tax hike needed. A19

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Toll Road Tale

The Foothill/Eastern Transportation Corridor Agency on Wednesday sold $1.26 billion in bonds to help finance construction of one 24-mile Orange County toll road and a five-mile segment. Details on the roads:

Eastern Transportation Corridor Length: 24 miles Toll*: $0.25 to $3.25 Daily transactions*: 77,000 Annual gross revenue*: $30 million Estimated completion: 1999 ***

Foothill Transportation Corridor--Antonio Parkway section Length: 5 miles Toll*: $0.25 Daily transactions*: 9,200 Annual gross revenue*: $840,000 Estimated completion: 1999 * Estimated average upon completion

Source: Foothill/Eastern Transportation Corridor Agency

Researched by JANICE L. JONES/Los Angeles Times