County’s Fiscal Work Earns Credit Upgrade : Bonds: Moody’s Investors Service gives O.C. its highest rating since the 1994 bankruptcy, brightening its financial picture.
In a move that will drop the cost of borrowing money for jail construction and other major projects, a top Wall Street rating agency Wednesday boosted Orange County’s once-dismal credit rating to its highest level since the 1994 bankruptcy.
A resurgent county government now has the second-highest bond rating of any county in the state, trailing only Contra Costa County, according to the latest report by Moody’s Investors Service.
The upgrade highlights how much the county has improved since its financial collapse, when its credit rating plunged to junk-bond status, and represents another endorsement by Wall Street of its belt-tightening policies.
In making the change, Moody’s cited the county’s “demonstrated ability and willingness to operate within the reduced operating budget,” its “continued prudent fiscal management” and its improved financial footing compared to other counties.
“No county has been through the extremes that Orange County has,” Moody’s Senior Vice President Ken Kurtz said. “The county’s continued progress warranted a fairly substantial [rating] revision.”
With an improved rating, the county can issue bonds without the insurance costs or high interest rates required for subpar ratings. Officials have talked about issuing bonds to complete the expansion of the Theo Lacy Branch Jail in Orange or building a new courthouse in South County, but no bond issue is expected for a couple of years.
In real terms, the upgrade means the county could pay up to a half of a percentage point less in costs for future borrowings, county Chief Financial Officer Gary Burton said.
“There are nothing but positives here,” Burton said. “The whole county has been working hard to straighten out our financial affairs.”
Wall Street’s increasing confidence in the county’s finances is based on several factors, according to Moody’s, including its ability to keep its budget balanced despite lean times. Another factor is the $300 million the county will receive in settlements with firms it accused of causing the financial collapse.
At the county’s Hall of Administration, supervisors celebrated the upgrade, saying it should reassure residents that the recovery continues.
“The upgrades in our credit from Moody’s is something the board, county employees and taxpayers of Orange County should be proud of,” board Chairman Charles V. Smith said. “It is rewarding to see the recognition of the sound fiscal management that has been put into place since the bankruptcy.”
Supervisor Jim Silva referred to the new rating as an accomplishment, as “one more hurdle” the county has overcome. But he cautioned that the county still has more to do. The duty remains, he said, to pay off about $1.2 billion in “recovery bonds” issued in 1995 and 1996 to cover the costs of the bankruptcy.
“Our new rating can be the foundation to reassure the taxpayers that our top priorities are to pay off the debt,” Silva said.
The higher rating means that it not only will be easier to borrow money, but also it will drop insurance rates for future county bond issues, officials said.
Burton said Fitch Investor Service also is reevaluating the county’s credit rating, which could be in line for a boost. But Orange County’s rating with Standard & Poor’s, the nation’s largest rating agency, remains well below Moody’s.
In June, the county dropped a $2-billion lawsuit against Standard & Poor’s, alleging that the agency failed to alert the county to the risky borrowings that led to the bankruptcy.
Burton said Wednesday that the agency has asked the county to sign a pledge not to file any other lawsuits against it--something county officials haven’t been willing to do.
Standard & Poor’s has said in the past that its legal fight with the county has in no way influenced the bond ratings the firm issues.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Rating Orange County
Moody’s Investors Service boosted Orange County’s credit rating Wednesday to its highest level since the county’s 1994 bankruptcy. Orange County now has the second-highest rating for any county in California, trailing only Contra Costa. Other counties with ratings the same as Orange County’s are Sacramento, San Francisco and Alameda.
*--*
Old New rating rating Pension obligation bonds Baa2 A1 1995 recovery bonds Baa3 A1 1996 recovery certificates Baa2 A2 Real property leases Baa3 A2 Equipment leases Baa3 A2 General obligation bonds Baa3 AA3
*--*
Source: Moody’s Investors Service, Orange County chief financial officer
Los Angeles Times
