Moody’s Boosts Orange County Bond Rating

SANTA ANA — Orange County’s bankruptcy recovery won its strongest Wall Street endorsement--and a $108-million windfall--when a rating agency raised the county’s lowly investment rating Wednesday for the first time since its 1994 financial collapse.

The action by Moody’s Investor Service will allow the county to borrow money at lower interest rates and without the costly insurance it is now required to pay. Moreover, it is expected to eventually free up a special $108-million fund created after the bankruptcy to cover short-term borrowing.

The Board of Supervisors will ultimately decide whether to use the $108 million to retire bankruptcy debts ahead of schedule or focus on other pressing needs such as jail construction, officials said.

County officials said that with access to the credit market, they will borrow money within the next year or two to fund one of a host of capital projects now on hold, from expansion of Juvenile Hall to a new emergency shelter for abused children.

Bond industry experts said the decision does not fully lift the shadow of the bankruptcy, but it does represent a significant vote of confidence in the county’s recovery efforts.

“There is no question that the county survived the budget cuts and was able with new management to lift itself up,” said Zane Mann, publisher of the California Municipal Bond Advisor. “This is an acknowledgment of that improvement.”

County officials were less restrained, calling the decision a “milestone” that shows how far the county’s financial picture has come in three years.

“This is an early Christmas present for the taxpayers of Orange County,” said Supervisor Jim Silva. “I think it shows that we have our financial house in order and have adopted a conservative financial plan.”

Moody’s boosted Orange County’s general fund bond rating from “Ba” speculative grade to “Baa3” medium grade quality. The county’s $750 million in general obligation bonds rose from Baa to Baa3.

“They’ve made a lot of the right moves and put their house in order,” said David Brodsly, vice president of Moody’s. “This was a remarkable bankruptcy, and it is very hard to compare. But they have clearly moved a long way from where they were.”

Brodsly praised the county for being able to balance its budget without slashing services and for instituting an early repayment program from the $800 million in debt it issued last June to get out of bankruptcy. The county will repay the debt over the next 30 years.

The county’s investment rating remains below other surrounding counties. Los Angeles, Riverside and San Diego counties hold “A” ratings while San Bernardino holds a “Baa1.”