County Tightens Investment Policy
The county moved to tighten its investment policy Tuesday but held off on allowing Treasurer-Tax Collector John M.W. Moorlach to make investments placed on “credit watch” by rating agencies.
Moorlach acknowledged that the new policy, which he recommended, will be more conservative. But he said that since the county’s bankruptcy in 1994, the board has generally preferred investment stability over yield.
The revision allows the county to buy only long-term investments rated A to triple A, and short-term investments rated at least A-1 by Standard & Poor’s, P-1 by Moody’s and F-1 by Fitch’s.
Moorlach wants board approval to buy fixed-income securities with a “credit watch negative” designation only if they meet or exceed the county’s minimum rating. Only the “cream of the crop” will be targeted for investment, he said.
However, if Standard & Poor’s places a credit watch negative on an short-term investment with an “A-1+” rating, it is poised to be downgraded to “A-1.” Although that rating makes it eligible for the county to invest in, the credit watch negative designation makes it ineligible. Once the credit watch is lifted, leaving the rating intact, or the investment is downgraded to “A-1,” it becomes an eligible investment again.
“Under this circumstance,” Moorlach said in his report to the board, “the issue should have been an eligible investment throughout.”
The revised policy is intended to better shield the county from risky investments, such as last year’s purchase of Edison International bonds.
In reaction to the county’s Edison investments, which Moorlach said he wasn’t aware of for a week and later apologized for, the board in March required that Moorlach or his assistant approve all investments by the close of the next business day.
The county bought $40 million in Edison notes, half in September 2000 and the other half in December 2000, after Edison had been placed on credit watch by ratings agencies because of the state’s utility crisis.
But Moorlach noted that the county didn’t lose any money on the investment. Under the guidelines approved Tuesday, the county would be prevented from buying Edison notes because it had only a low “A” rating, he said.
The Edison bonds were purchased by a county investment pool that, at the time, held $1.1 billion in excess funds for the county’s school districts. The investment in Edison securities amounted to 3.3% of the schools’ pool.
The county’s $2.7-billion main investment pool did not invest in Edison notes.
Given their post-bankruptcy sensitivity, some supervisors’ worry that buying an investment with a “credit watch negative” designation would be a public relations disaster.
“The term ‘negative’ is such a charged word, and I think the board needs more time to study this proposal,” Supervisor Tom Wilson said.
The board will revisit the policy in four months, when more information on Moorlach’s proposal and the county’s finances is expected.
