County Offers Key Properties to Secure Notes

Bankrupt Orange County has agreed to offer up its jails and some key real estate as collateral to settle a lawsuit brought by creditors holding about $165 million in county-issued notes.

Under the proposed deal, the county will sign over an interest in eight properties instead of setting aside cash to repay the noteholders.

In return, the creditors agreed to drop what promised to be costly litigation challenging the county’s refusal to make promised regular monthly set-asides to redeem the notes.

Bruce Bennett, the county’s lead bankruptcy attorney, said Monday that the deal offers concrete evidence of the county’s willingness to repay its debts--a signal also aimed at improving the county’s battered image in financial markets.

The deal is expected to be approved by county supervisors and U. S. Bankruptcy Judge John E. Ryan in separate proceedings today.

The litigation involved creditors holding county tax and revenue anticipation notes, known as TRANs, which most local governments sell to raise money to tide them over until property tax revenues begin to flow in.

To repay these noteholders, the county pledged to make cash deposits into a reserve fund on a monthly basis. It had put aside about $30 million before December of last year, but when the county declared bankruptcy that month, officials argued that they had no obligation to make the set-aside payments.

The note holders disagreed, and U. S. District Judge Gary L. Taylor ordered the county last July to craft a plan to repay the $165 million to creditors.

County bankruptcy attorneys appealed Taylor’s ruling to the U. S. 9th Circuit Court of Appeals, but later proposed an out-of-court settlement to the noteholders’ attorneys.

By offering to give the noteholders an ownership interest in the county buildings, the county avoids tying up its limited cash in a reserve fund, Bennett said.

Robert Darby, a lawyer for three institutional investors that hold $60 million worth of the notes in question said his clients were pleased.

County officials say the settlement reaffirms the county’s good faith efforts to repay debts and preserves the county’s ability to issue notes in the future.

The eight properties being mortgaged for the deal are the Theo Lacy Branch Jail and Juvenile Hall in Orange; the Central Women’s Jail; the 17th Street Health Care Agency office in Santa Ana; the Grand Avenue Operations Center and Manchester Office Building; the Sheriff-Coroner’s Administrative Headquarters and the Joplin Ranch, a juvenile detention center in Trabuco Canyon.