SANTA ANA, Calif. - Following months of uncertainty, the Orange County Employees' Retirement System and some other California governmental units may be close to getting a chunk of their money back from bankrupt Orange County, Calif.
The retirement system could receive later this month some 78% of its $131 million investment in an also-bankrupt Orange County cash investment pool, under terms of a settlement agreement signed in April. But before that happens, a U.S. Bankruptcy Court needs to approve the plan, and any appeals need to be heard.
A court will receive the creditor agreement May 2, and if approved, an 11-day appeals period begins. If that passes, the county has five days to disperse the funds.
Meantime, OCERS officials are chafing to get their pension fund's assets invested in longer term securities. Currently, at least $67 million of OCERS' money is sitting in short-term paper with an average maturity of about seven days, and "we feel we can get a better rate," said Terry Slattery, fund investment officer.
The pension fund's cash management has been hampered since the county declared bankruptcy Dec. 6. At one point, OCERS took back $60 million from its investment managers to fund other investment commitments, Mr. Slattery said.
In general, the Orange County debacle changed the way the fund monitors its cash, Mr. Slattery said. More attention is being paid to guidelines and compliance, he said.
So far, the pension fund has gotten back between $30 million to $35 million of its investment with Orange County. The assets were obtained under a special bankruptcy procedure designed to allow investors to get up to 35% of their investment back to keep their operations going.
Even so, the pension fund wrote off its entire investment with Orange County for its fiscal year ended Dec. 31, Mr. Slattery said.
If the settlement makes it through the courts, the pension fund will get back between $67 and $72 million, in addition to the $25 million to $30 million it already received. Another $25 million is planned to be paid back with funds received from to-be-determined sources, and about $4 million with warrants maturing June 5.
But how Orange County is going to come up with the cash to pay its debts is unclear.
More than $1 billion of taxable notes come due in July and August, a concern for holders of Orange County debt, said Cadmus Hicks, vice president in research for in the Orange County office of John Nuveen & Co. Inc.
Mr. Hicks said one option proposed is for Orange County to seek to invalidate $600 million of debt because the purpose of the issue was to increase the Orange County pool's leverage, not to fund county operations. While the county wouldn't have to pay back the bonds, it would have to pay damages in court, he said.
David Herships, first vice president in municipal research with the brokerage firm Kemper Securities Inc., Chicago, said: "I wouldn't be surprised to see a temporary interruption" in payment of Orange County's short-term debt.
Questions are being raised about the county's commitment to paying its debtholders, Mr. Herships said. He said a proposal to hike the county's sales tax hasn't received complete support from county supervisors.
Other proposed means to raise revenues include establishing a land fill tipping fee, diverting state license plate fees and borrowing against that cash flow, and selling the county airport, all of which would require varying forms of state approval.
Another part of the county's budget problems stems from the loss of income it anticipated from its own investment in the pool, about $175 million, Mr. Herships said. he said.
