O.C. Offering $155 Million in Bonds Today : Bankruptcy: Analysts, critical of holding sale simultaneously with Measure R vote, predict trouble due to investor concern.

SANTA ANA — Bankrupt Orange County will be hawking $155 million in bond debt today to wary Wall Street investors just as residents here vote on a half-cent sales tax increase.

Some analysts predict the county will have difficulty selling the so-called Teeter bonds, a key part of the county’s bankruptcy recovery plan, because bond buyers are concerned that voters may reject the tax increase, known as Measure R.

A defeat could help send the county spiraling into default on about $1 billion worth of bonds that come due this summer, analysts said.

Although the Teeter bonds--like the $280 million of recovery notes the county sold two weeks ago--come with added security features, many major municipal bond investors are boycotting the sale.

“These bonds are teetering and they’re tottering,” said Steve Kelleher, a trader with Sutro & Co., a San Francisco investment banking firm that doesn’t plan on buying the bonds. “We will be conscientious observers on this deal.”

The Teeter bonds, secured by delinquent property tax payments the county and other agencies anticipate collecting, are being sold to help refinance $175 million of Teeter bonds due Friday. Without the bond sale today, the county will default on its outstanding Teeter debt.

The bonds will also generate $10 million a year in additional revenue for the county. Some large investors questioned the wisdom of Orange County selling debt on the same day as the Measure R sales tax vote.

“The timing of this issue, well, you probably couldn’t pick a worse time to price it,” said Joe Piraro, who manages a $2.5-billion bond portfolio for Van Kampen Merritt Inc. in Chicago.

Although Van Kampen reportedly bought some of the county’s recovery bonds June 13, it does not plan to purchase the Teeter bonds today because of the sale tax vote and credit concerns about the bonds, officials said.

Wranglings over the Teeter bonds forced Orange County officials to delay the sale until the last minute.

For example, in order to distance the Teeter bonds from the bankrupt county, the county wanted to set up a separate entity called the Orange County Special Financing Authority to sell the bonds, but couldn’t get the necessary approval from U.S. Bankruptcy Court until June 16.

And, as with the recovery notes, the county was forced to find an added security policy to placate nervous investors. It purchased a letter of credit from the Industrial Bank of Japan that guarantees investors will get their money if the county can’t pay.

“This financing is in the best interests of everyone involved in the bankruptcy; it will take $175 million of existing debt off the county’s books,” said Richard Meister, a manager with Goldman Sachs & Co., the county’s underwriter on the deal.

Although bond traders predicted the county will pay an extra premium to investors who buy the bonds because of the credit quality and sales tax vote, Meister said he didn’t expect the vote to hurt the sale because the bonds are being paid off with property taxes, not sales taxes.

Still, some bond investors said a potential defeat of the sales tax will spook bond buyers. Some predicted that Goldman and A.G. Edwards & Sons would not be able to sell all the bonds Tuesday, and others said the county will pay a penalty in the market.

When the county sold $295 million in recovery bonds two weeks ago, it paid a penalty of about $14 million in added interest, or 25 basis points, about the amount traders expected the county would be charged by Wall Street today.

Because of the letter of credit, Moody’s Investors Service gave the Teeter bonds a top investment grade rating but said the county’s debt would be considered junk bonds without the bank’s backing.

Other investors said they would not buy the bonds as a protest against the county’s threats to default on at least $600 million of bonds that come due this summer.

“It’s a moral decision but also it’s just not a good business decision to buy these things,” said John Mooney, who manages a $180-million bond portfolio for SunAmerica Asset Management in New York.