O.C. IN BANKRUPTCY : County Gets Go-Ahead to Sell $155 Million in Long-Term Bonds

Orange County won approval in U.S. Bankruptcy Court on Friday to sell $155 million in long-term bonds later this month in one of the county’s first steps toward raising cash to pay off the nearly $2 billion it owes to creditors.

The sale of the so-called Teeter notes is expected to give the county a onetime windfall of $54 million that can be used to pay off creditors as part of its plan of adjustment. The proceeds also will be used to help get rid of some of the county’s old debt by helping pay off $175 million in so-called Teeter notes that are due June 30.

Judge John E. Ryan also approved the creation of a new joint powers authority that will be able to issue the new long-term Teeter bonds, which are expected to generate $10 million a year in additional income for county coffers. The authority will include the county and members of the Orange County Development Agency as members.

Lead county bankruptcy attorney Bruce Bennett said the plan gives the county offer one more way of raising cash to pay off creditors without having to resort to increasing taxes or hiking fees.

“This is a program that will solve existing problems and at the same time contribute something else to the resolution of other problems,” Bennett said. “We are not going to have an opportunity like this very often.”

Teeter notes are typically one-year debts that help governments raise cash for schools, cities and other special districts in anticipation of collecting delinquent property taxes. With the approval Friday of the new authority, the county will be the only one in the state permitted to issue long-term versions of the notes, most of which will have a 20-year maturity.

The state Legislature passed a bill last month enabling the county to form the new authority and make the long-term issues as a way of helping it out of its financial crisis. But the plan still required Ryan’s approval. The new long-term note program will generate an additional $10 million a year in part because it’s a onetime issue instead of a yearly offering that will allow the county to pay less in transaction and lawyer fees.

Ryan called the plan “reasonable.”

“It goes without saying that the county has a very difficult road to travel to solve a $2-billion crater,” Ryan said, referring to the county’s debt. “The process the county has to take to resolve some of these problems is a step-by-step process. . . . This is one more step.”

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A Nother county bankruptcy attorney, John Amsden, said it was important to create the joint powers authority to strengthen the bonds’ credibility with the public since the authority will be a separate legal entity from the county and will be be protected from creditors’ claims.

Bennett said he expects the new notes will go on sale by late next week or early the following week.

The sale of the $155 million in notes will provide $62.5 million to schools, cities, and other special districts that had been counting on the disbursements as part of the regular Teeter program, Amsden said.

County attorneys argued that it was necessary to pay off the old Teeter notes before trying to sell new notes to give the new issue credibility.

But attorneys representing county employees and four major creditors opposed retiring the $175-million debt and argued that the payment amounted to giving preferential treatment to some creditors while leaving others with no guarantee of getting back all they are owed.

“We should be treated equally,” said Larry Gabriel, an attorney representing the Official Subcommittee of Employee Organizations. “These bondholders will be getting 100 cents on their dollar while the rest of us must sink or swim, depending on the future of the county. That’s a difficult pill to swallow for employees and other creditors.”

Gabriel said county employees eventually plan to file a claim against the county for compensation of job losses, and losses of income, merit raises and other benefits caused by the county’s bankruptcy.

An attorney representing one of four major county creditors also objected to the plan. The four, Alliance Capital Management L.P., the Benham Group, Putnam Investment Management and the Northern Trust Corp., represent investors who hold about $75 million in county tax and revenue anticipation notes, known as TRANS.

The creditors are being asked by the county, along with other bondholders with about $1 billion in notes that will be due this summer, to wait for a year for their payment. That matter is scheduled to be heard by Ryan Friday

“The payment of the old Teeters affects the rights of other creditors and is illegal because it is being done outside of a plan of adjustment,” said attorney Charisse Young, who represented Alliance. “There can be no justification.”

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But Ryan overruled the objections and said he did not believe that the county’s paying off the old Teeter debt affects their ability to pay future debts.

“The benefits outweigh the negatives,” Ryan said. “Any income flow to the county at this point is a benefit.”

Bennett said the county has two other plans to raise more cash to pay off its creditors.

The most critical will be the passage of Measure R, which would raise $130 million a year in new sales tax revenue over 10 years.

The county also wants to turn its Integrated Waste Management Department into an ongoing business by opening the county’s landfills to garbage generated elsewhere. The county would raise the dumping fees from $22.75 to $35 a ton.