Merrill, O.C. Bondholders Agree to Settle
Orange County municipal bondholders burned by the county’s 1994 bankruptcy have agreed to a settlement proposal in which they would be paid $3.1 million in damages by Merrill Lynch & Co. and four other Wall Street investment firms that marketed the bonds.
The five firms would be the last of 14 investment houses to settle the suit, which bondholders filed in 1995. The others agreed last year to pay $4.4 million in damages to the bondholders, mainly institutional investors.
The county’s bankruptcy declaration left it unable to pay interest on $9 billion in bonds it had issued between July 1, 1992, and Dec. 6, 1994.
The settlement proposal, filed last week in Orange County Superior Court, calls for Merrill Lynch to pay the larger portion, $1.9 million. The proposal must be approved by the court. A hearing has been scheduled for Feb. 16.
Other defendants and the amounts they’ve agreed to pay are: CS First Boston Corp., $990,000; KPMG Peat Marwick, $225,000; Leifer Capital Inc., $30,000; and Fieldman Rolapp & Associates Inc., $25,000.
The suit contends that the investment firms misled investors about the financial health of the county and its investment pool.
Merrill Lynch said in a statement Tuesday that all of the bonds in which it was involved “have been fully repaid” and that it agreed to settle the suit only because “it made more sense to resolve the case for a reasonable sum than to continue the expense and distraction of further litigation.”
Although a settlement would end the bondholders’ suit against Merrill Lynch, the giant brokerage still faces trial on a suit filed by the county, seeking $2 billion in damages, in conjunction with the bankruptcy. That suit claims Merrill Lynch was negligent in its handling of government investment accounts managed by former Orange County Treasurer Robert L. Citron. Merrill Lynch advised Citron--or failed to advise him--in many of his highly risky investment strategies, the suit claims.
Separately, Merrill agreed in June to pay the county $30 million to avoid possible criminal prosecution by the county district attorney for its role in the bankruptcy.
The county filed for bankruptcy protection when it was discovered that there was not enough money in the investment accounts to cover claims by all the agencies entitled to a share of the pool. In all, the fund lost more than $1.6 billion.
Orange County’s municipal finances have brightened since then, however. Moody’s Investors Service last week upgraded $1.5 billion of the county’s debt to investment grade. The county emerged from Chapter 9 bankruptcy in June 1996.
This report includes information from Bloomberg News.
