New Sale of Bonds Indicates County’s Financial Health Is Bouncing Back

Reflecting an improvement in its financial health, Los Angeles County borrowed $1.05 billion on Thursday to cover most of its short-term cash needs for the coming fiscal year--the lowest amount in six years.

County officials said the tax-exempt notes were well received by wealthy individuals and Wall Street mutual funds who bought them, in part because repayment is guaranteed by a syndicate of Swiss, German and American banks.

“It was a good sale. We got a good interest rate,” said County Treasurer-Tax Collector Larry Monteilh. “We’re very pleased.”

Monteilh said the sale of the one-year notes yielding 3.85% reflected an improved level of confidence in Los Angeles County, less than a year after facing its worst-ever fiscal crisis.

County officials were decidedly upbeat after the notes were sold. “It was a nice, tidy sale,” said Maureen Sicotte, the county’s director of public finance. A total of $426 million in county Tax and Revenue Anticipation Notes were sold to individuals, with the remaining $624 million going to institutional investors.

Fidelity Investments purchased $210 million worth for its portfolio, by far the largest stake of any investor. Vanguard Group bought $50 million, Smith Barney Inc. purchased $40 million and Merrill Lynch acquired $25 million, Sicotte said.

The notes were guaranteed by a multinational group of banks, including Credit Suisse, Union Bank of Switzerland, Westdeutsche Landesbank of Germany, Morgan Guaranty and Bank of America. The county purchased the letter of credit, rather than sell the notes based solely on its own credit-worthiness.

One of Wall Street’s biggest bond rating agencies, Standard & Poor’s, removed the county from “credit watch” just last week, but said the outlook for the county’s long-term credit rating remains negative unless the Board of Supervisors makes more progress in bringing its spending under control.

“Without continued restraint in the county’s budget, elimination of its reliance on nonrecurring revenues and successful reform of the health-care system, the county’s fiscal position could erode and prompt a ratings downgrade,” Standard & Poor’s said. The rating agency has lowered the county’s long-term credit rating four times in recent years.

The county has been significantly aided in its financial recovery by the Clinton administration’s promise of more than $536 million to bail out the hospital-heavy health system and move it in the direction of less costly care at community-based clinics.

“In order for Standard & Poor’s to revise the outlook for the county’s debt to “stable,” or to raise the ratings, further progress needs to be made” to bring revenues and spending into line and to move beyond “significant reliance on one-time funding measures,” the agency said.

Standard & Poor’s noted that the county’s budget situation is being helped by a modest recovery in the Los Angeles economy, but it said total employment is not expected to reach pre-recession levels before the end of the century.