Supervisors Approve Sale of $1 Billion in Notes, Bonds

With a mixture of caution and relief, the Board of Supervisors on Tuesday approved the issuance of up to $1 billion in county notes and bonds that should allow the largest municipal bankruptcy in U. S. history to be brought to a close by June 11.

The board’s action culminates more than a year of meticulous planning and ratifies the final--and most important--element of Orange County’s bankruptcy recovery strategy.

Barring any unforeseen developments, the county will issue up to $850 million in certificates of participation and up to $150 million in pension obligation bonds on June 6, using the proceeds to pay its debts to bondholders, vendors and other creditors.

Officials plan to wire payments to creditors by June 11, the day the county is scheduled to pay off all its creditors and fulfill the terms of the recovery plan approved by U. S. Bankruptcy Court earlier this month.

For county leaders who have spent the last 18 months dealing with layoffs, cutbacks and problems caused by the bond crisis, Tuesday was a rare opportunity to savor the impending emergence from bankruptcy.

“This is sort of a red-letter day for the county,” Chief Executive Officer Jan Mittermeier said. “This allows the county to move forward and address other issues without the bankruptcy hanging over us.”

But some supervisors warned that the recovery plan will limit the county’s financial options for years to come and saddle it with large debts.

“I don’t think the board feels in any way that we’re getting off the hook at this point,” said Supervisor Marian Bergeson, noting that the certificates of participation were secured by using various landmark county buildings--including the Hall of Administration--as collateral.

“We’re sort of in hock up to our eyeballs at this point,” Bergeson added. “I think we probably are going to celebrate as we come through this stage of bankruptcy, but we certainly have a large charge ahead of us. . . . I don’t think we want to get too heady at this point.”

The Dec. 6, 1994, bankruptcy filing stemmed from $1.64 billion in losses suffered by the county-run investment pool that contained money from cities, school districts and other government entities. The losses were blamed on the risky investment practices of former Treasurer-Tax Collector Robert L. Citron.

Pool investors agreed to settle for 80 to 90 cents on the dollar, with the remainder to be paid only if the county is successful in its litigation against outside parties such as Merrill Lynch & Co., who sold the county most of the risky securities. The Wall Street brokerage house has denied any wrongdoing.

A good portion of the money generated from the sale of the notes and bonds will go to pay off noteholders, who agreed to a one-year “rollover” of notes originally due on June 30, 1995.

Officials plan to pay off the soon-to-be-issued notes and bonds with fee and tax revenues, some of which have been temporarily diverted from their original purposes under special laws approved by the state Legislature last year.

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Supervisors on Tuesday praised county officials and the outside finance and legal consultants for their work on the recovery plan, including a review by a public finance watchdog committee set up in the wake of the bankruptcy.

“Certainly we would have wanted this level of scrutiny 1 1/2 years ago,” Supervisor William G. Steiner said. “If we did, we might not be in this situation. But that’s water under the bridge. . . . I certainly think this is a new day for Orange County.”

Board Chairman Roger R. Stanton agreed. “I think a safety net was woven by the CEO, county staff and advisors,” he said.

Board members expressed general satisfaction with the plan. But at Steiner’s request, the board did trim from $950 million to $850 million the maximum value of the certificates of participation being sold.

Chris Varelas, a Salomon Bros. investment banker and county financial advisor, said he did not expect the sale to exceed $800 million, and that the modification would not threaten the recovery plan.

“I felt the [original] ceiling was too high,” Steiner said.

The board spent about an hour discussing various aspects of the note and bond sale before voting 5 to 0 in favor of it.

“I’m anxious to move forward, pay our creditors and get on with life,” Supervisor Jim Silva added.