O.C.’s Debt Refi Will Save Millions

Orange County has refinanced the remaining debt from its 1994 bankruptcy by selling more than $560 million in municipal bonds on Wall Street, a move that will allow the county to save millions and pay off the debt a decade earlier than anticipated.

By Tuesday, Goldman Sachs, the county’s financial broker, had sold or had orders for $418 million in county bonds at yields ranging from 2.63% to 3.99%. A remaining $145 million in bonds is expected to be sold today.

“This helps us save $471 million in the long run,” said an elated Supervisor Jim Silva.

The savings will come from lower interest rates and from paying the debt early.

Following the county’s $1.64-billion bankruptcy, the Board of Supervisors approved issuing bonds to pay off county debts.

The original bonds were to mature in 2026 and had yields of 5.6% to 6%. Proceeds from the new bonds will pay off the older bonds, and the county will clean its slate by 2016. The cost of issuing the new bonds was estimated at $5 million.

Much like people with refinanced home mortgages, the county is capitalizing on lower interest rates.

“It’s a good strategy to take advantage of these low rates right now,” said George Goncalves, a treasury strategist for Banc of America Securities in New York.

The bond sale comes after the mid-July upgrade of the county’s credit rating from neutral to positive by Standard & Poor’s and other rating agencies.

In a recent report, credit-rating firm Moody’s Investors Service commended the county for its “attentive financial management.”

George Strickland, who manages a California municipal portfolio for Thornburg Investment Management, reacted to the county bond sale with a tongue-in-cheek question: “Where is Robert Citron? As long as he’s not involved in this deal, it’s OK.”

Strickland was referring to former Orange County Treasurer Robert L. Citron, whom many blamed for the bankruptcy.

Citron borrowed hundreds of millions of dollars to place big bets on highly speculative securities that relied on low interest rates. When rates rose in the early 1990s, the plan collapsed. What followed remains the largest municipal bankruptcy in U.S. history.

For Silva, the bankruptcy has meant a cloud hanging over the county’s finances every year since he began as supervisor in 1995. Each year the county paid about $90 million to help lower the debt.

But the sale of the new bonds seemed at risk last week, said Supervisor Lou Correa, a former investment banker.

The state also was preparing a large bond issue and it was offering higher yields, Correa said. That worried Orange County officials.

But the state bonds were mostly sold out by the time Orange County bonds came to the market, minimizing any negative impact, Correa said.