Creditors Apparently Buying Recovery Plan

In another sign that the county is moving closer to financial normalcy, officials said Friday that initial ballot returns show overwhelming support for the county’s bankruptcy recovery plan among creditors who must approve it.

Though a final tally won’t be completed until next week, the apparent backing of bondholders, vendors and others owned money by the county boosts the likelihood that U. S. Bankruptcy Court Judge John E. Ryan will approve the recovery plan at a May 15 hearing.

It also removes one of the last obstacles to the county’s effort to emerge from bankruptcy in mid-June, so that it can sell approximately $800 million worth of long-term bonds, the proceeds of which would be used to pay off its debts.

“This is a major step forward,” said Robert Jay Moore, an attorney representing many creditors. “It shows that the community of creditors supports the county’s approach.”

Vendors and debt-holders will receive 100% of what is owed them.

By contrast, the government agencies that kept their money in the ill-fated county investment pool received 80 to 90 cents on the dollar, but stand to get more money back if the county is successful in its bankruptcy-related litigation against the Wall Street firms it blames for its investment losses.

Orange County declared bankruptcy after discovering that the county-run pool had suffered $1.64 billion in losses, which were blamed on the risky investments of former Treasurer Robert L. Citron.

The creditors’ announcement comes four days after the county arranged insurance for the $800-million bond deal, and learned that Moody’s Investment Service might upgrade the credit rating on its bonds from rock bottom to “investment grade.”

“I think we are on a roll,” said Supervisor William G. Steiner. “It’s nice after having such a disaster and so much bad news to see that all the hard work to come out of the bankruptcy is paying off.”

The U.S. Bankruptcy Court required the county to send ballots to more than 15,000 creditors in an effort to gauge their support for the recovery plan. Though not all the ballots have been counted, county spokeswoman Pat Ware said Friday the vast majority of those counted favored the plan.

Moore said a few parties have raised objections to the plan including, Merrill Lynch & Co., which sold the county many of the securities it lost money on. The county is suing the Wall Street giant, which has steadfastly denied any wrongdoing and contends that Citron was a sophisticated securities buyer who knew the risks he was taking.

But Moore said he doubted the objections will prevent the recovery plan from being approved by the bankruptcy court. “I don’t believe they pose any obstacles,” he said.

Steiner also expressed guarded optimism but said it is still to early celebrate the end of the bankruptcy.

One potential problem, he said, is the threatened shutdown of the county’s trial courts, which face a $20-million shortfall.

The Assembly is scheduled to vote Monday on an emergency bill that would provide the courts with the money needed to operate through June 30, the end of the fiscal year.

But if the bill fails, the courts could run out of money within a few weeks, creating what Steiner described as a “constitutional crisis” that could threaten the recovery effort.

“Obviously, we don’t want to be too smug until the deal is done,” Steiner said.