Bankruptcy’s Over--and the Parties Begin
There were no parades down Orange County’s main streets and no celebratory fireworks when the nation’s largest municipal bankruptcy came to a close.
But it is party time--for lawyers, financial advisors and investment bankers who enjoyed banner business as the county slogged through a year and a half in bankruptcy after losing more than $1.5 billion on its investments.
For corporate executives too, after they helped engineer a massive recovery plan that repays creditors of all sorts but leaves a county budget that delivers fewer services to the poor and needy.
One bankruptcy committee will celebrate this month at Disneyland. An executive with the Irvine Co., the county’s biggest landholder, will host an exclusive gathering Wednesday at the four-star Four Seasons.
And a bash is planned in New York City this September.
“It’s like letting down your hair after 18 months of hard work,” said Paul O. Brady Jr., city manager for Irvine, which actually borrowed money to invest in the county’s high-flying investment fund and then lost $38 million with its collapse in December 1994.
Another view: “It’s unseemly,” said Bruce Whittaker, an activist who successfully fought a bankruptcy recovery tax. “The county created a self-inflicted injury, financial suicide. And it’s completely out of place for anyone to celebrate,” he said.
Brady, who represented cities in the lengthy negotiations that produced a recovery plan, hasn’t decided whether to attend the celebration at Disneyland for the committee on which he participated.
Brady isn’t invited to the Irvine Co. fest. The party of 20, hosted by Gary Hunt, is designed to celebrate the business community’s efforts to craft a recovery plan. Hunt is the Irvine Co. executive who invited former state Assembly Speaker Willie Brown to his Corona del Mar home for a key meeting in early 1995 when beleaguered Orange County couldn’t get Sacramento’s attention.
The party guest list includes former County CEO William J. Popejoy, developer George Argyros, Thomas C. Sutton, chief executive officer of Pacific Mutual Life, and Bruce Bennett, the county’s bankruptcy lawyer and a leading architect of the recovery plan.
Although taxpayers won’t be picking up the party tabs, some local activists find any kind of celebration inappropriate for a tragedy that caused the layoff of hundreds of county employees and cost $40 million alone in fees to lawyers and consultants.
Wayne A. Wedin, past chairman of the Orange County Business Council, and on the Four Seasons guest list, disagrees.
“The party is not about blowing up the balloons and shouting, ‘Hurray!’ ” said Wedin, who noted that many in the business community volunteered their financial expertise and helped bring warring sides together. “This is a revitalizing [step]. We need to get ready to begin the restructuring work yet to be done in this county.”
Another bash will be July 24 at Disneyland for those who helped fight for the 200 cities, schools and other agencies that lost money when then-Treasurer-Tax Collector Robert L. Citron’s investment pool lost $1.64 billion.
That party is being hosted for about 20 people by Jon Schotz, financial advisor to the creditors committee.
The party will begin at Club 33, the members-only restaurant in Disneyland decorated with antiques collected by Walt himself. It’s the only place in the park that serves alcohol.
“This gives a sense of closure,” Schotz said. “You had people thrown together for 18 months working to solve a problem they had nothing to do with creating. We wanted to have a dinner to say we accomplished a lot and now it’s time to move on.”
The dinner, which will cost invitees about $60 each, could include readings by Schotz from his personal diary about the bankruptcy.
“I might have to rag on a few people,” he said.
And who is a key target? County bankruptcy lawyer Bennett.
Reached last week in his Los Angeles office, Bennett said although he was going to the Irvine Co. bash, he had no plans to crash the Disneyland party or throw one of his own.
“The people who worked on this have a lot to be proud of,” he said.
Still, expect Bennett to attend what is called a “closing party” for the county’s recently completed $880-million recovery bond sale, sometime in September.
Watch for the county’s tireless financial advisor, Christopher Varelas of Salomon Bros., to give his traditional slide show of old movie stills with commentary about the bankruptcy as investment bankers, bond investors and county officials schmooze at a yet unnamed New York restaurant.
But for most Orange County residents, the end of the bankruptcy is nothing to celebrate, said Reed Royalty, executive vice president of the Orange County Taxpayers Assn.
Royalty doesn’t mean to be a “wet blanket,” but this is not time for fiestas, he said.
“It’s embarrassing that we did this. The public is not celebrating and dancing in the streets just because it’s over. I’m afraid that celebrations will give people the impression that we’re out of it and we don’t have to pay back the [money] we lost. We do,” he said.
Indeed, the county will spend the next 30 years paying off the $880 million it borrowed to get out of bankruptcy.
The interest alone on the bonds will cost residents more than $700 million. That doesn’t include the price tag of just selling the bonds, which ran about $40 million.
One bankruptcy committee already had a small dinner party in a Newport Beach restaurant where lawyers read mock telegrams congratulating them for their work.
“We really got to know each other as friends. There was a lot of stress during the past 18 months and that creates some tight bonds,” said Henry Kevane, a lawyer who worked on the case.
“People took their jobs very seriously here. We really struggled to make decisions,” he said.
Although Kevane has already moved on to solving another municipal bankruptcy--a hospital in Calexico--he was surprised to hear there are other Orange County parties he hasn’t been invited to.
“I’m a little miffed,” he said.
