Merrill Aims to Handle O.C.’s Refi

A brokerage house that was blamed by many for Orange County’s 1994 bankruptcy now wants to be hired to refinance the county’s $800 million of lingering debt.

Officials with Merrill Lynch & Co. have suggested to three Orange County supervisors that the company restructure the remaining debt -- a deal that could generate more than $2 million in fees for the brokerage.

Supervisors Tom Wilson and Jim Silva said Tuesday they opposed Merrill’s involvement, arguing that it would allow the company to profit from a problem it created. Silva said he wouldn’t support Merrill’s involvement even if it would save the county $1 million compared with competing firms.

“I wouldn’t go with them because I don’t really trust them,” Silva said. “I can’t believe that they would have the ability to look supervisors eye to eye and ask to do business with them after what the county has suffered because of the bankruptcy.”

Other county officials, including Supervisors Lou Correa and Chris Norby, said allowing Merrill Lynch to bid for the job would benefit the county by creating competition. Further, they said, they would support Merrill if it made the best proposal. Correa said Merrill might have to discount its rates to win the job.

“My duty is to the taxpayers, to give them the best possible deal,” Correa said. “If Merrill wants to come and play, they’re going to have to show some real good faith.... Are they willing to come in and buy the business?”

Merrill officials took their proposal to Correa, Norby and board Chairman Bill Campbell, who said he was studying the idea.

Merrill spokesman Bill Halldin declined to discuss the matter in detail, saying only, “We welcome the opportunity to compete for the county’s business.”

In the early 1990s, Merrill helped the county broker some transactions in which then-Treasurer Robert L. Citron borrowed about $13 billion and placed it in investments tied to low rates on the bond market. When rates rose, the county lost $1.6 billion and declared the nation’s largest municipal bankruptcy.

Critics of Merrill say the brokerage induced Citron to make risky investments partly for its own benefit.

In 1998, Merrill paid more than $437 million to resolve lawsuits with Orange County and other investors who lost money in the county’s investment pool. The firm paid an additional $30 million in a negotiated settlement that ended a criminal investigation.

Orange County did not do business with Merrill again until 2003, when the Board of Supervisors voted to allow Treasurer-Tax Collector John M.W. Moorlach to buy certain low-risk investment products from the company.

By tapping into more than $100 million in savings and benefiting from lower interest rates, the county expects the refinancing will allow it to pay off its debt by 2015, more than a decade ahead of schedule. The refinancing is expected to save the county more than $450 million by eliminating a decade of payments.

Wilson says the idea of involving Merrill again makes about as much sense as rehiring Citron, who admitted consulting a psychic while plotting the county’s investment strategies.

“If they’re serious about this, I’ll go down and get a set of tarot cards,” Wilson said. “We can hold a seance and consult our tarot cards.”

Campbell said Merrill’s proposal was worth considering in part because of personnel changes within the company. For example, one member of the Merrill team assigned to the refinancing proposal helped organize the county’s bankruptcy recovery plan while employed by brokerage Goldman Sachs, Campbell said.

“It’s different people now at Merrill Lynch and people who are familiar with our situation who may bring a talented solution because they’re so familiar with the original debt,” Campbell said. “On the other hand, the reason we’re having to [issue bonds] is because of Merrill Lynch.”

Moorlach and Orange County Auditor-Controller David Sundstrom say they support considering Merrill. So does the president of the county taxpayer association.

“If we can get a better deal from Merrill than anyone else and it’s an honestly measured deal, I’d say go ahead and do it,” said Reed Royalty, president of the Orange County Taxpayers Assn.

“Having said that, I would say there’s an extra hurdle for Merrill Lynch to get over because of the mistrust left over from the bankruptcy. If I was a member of the Board of Supervisors, I’d give extra scrutiny to their proposal.”