Creditors Challenge Note Payment Plan

Four large creditors Monday challenged Orange County’s plan to pay off $175 million in notes maturing this month and force holders of $800 million in short-term debt to wait a year to collect.

The creditors represent mostly investors who hold notes due in July and August. They are Alliance Capital Management L.P., The Benham Group, Putnam Investment Management and The Northern Trust Corp.

The lawsuit filed in Bankruptcy Court came as no surprise to Orange County officials. Negotiators representing the county and its creditors agreed last week to postpone the payment of the short-term debt for a year, despite threats by other creditors to challenge the plan in court. The matter is scheduled to be heard by U.S. Bankruptcy Judge John E. Ryan on June 16.

Under the agreement, Orange County promised to redeem all $175 million so-called Teeter notes when they mature June 30, while forcing the holders of notes totaling $800 million and which are due in the next two months to wait until June 30, 1996, before getting paid. Notes due in July and August include Series A and Series B Tax Revenue Anticipation Notes, known as TRANS.

Most of the Teeter notes are backed by delinquent property taxes. However, later this month, Orange County will issue $155 million in long-term Teeter-backed bonds. Officials hope that the refinancing will infuse the county treasury with $60 million in sorely needed cash, while long-term Teeters will give the county an extra $10 million annually.

The bond sale will be underwritten jointly by Goldman Sachs & Co. and A.G. Edwards Inc.

Last week, one investment officer criticized the county’s plan as a “cram-down.”

“They have reneged on their original offer and just told us take it or leave it,” said Stephen Ward, chief investment officer with Charles Schwab in San Francisco, which owns $41 million of the taxable notes the county sold last year.

Schwab and other creditors were upset because they charged Orange County had backed away from a tentative agreement to immediately redeem 50% of one issue of its bonds.

County officials said the new negotiated agreement with investors holding notes maturing this month was necessary because it is a crucial part of the county’s effort to recover from the bankruptcy action it filed Dec. 6.

While extending the payment on the notes due in July and August, the county promised not to repudiate its debts.

Also on Monday, the county said it would move forward with a plan to issue $295 million in bonds guaranteed by MBIA Inc. The county and attorneys for its Official Creditors Committee also filed a plan with the Bankruptcy Court to roll over until June 30, 1996, almost $1 billion in county debt due this summer.

Institutional investors expressed strong opposition to the rollover, which requires the approval of more than 50% of the holders of the nearly $1 billion in notes. * ‘PLAN B’ OUTLINED

Proposal ties bond sale to rising land values. B7