ORANGE COUNTY IN BANKRUPTCY : Pool Investors Challenge Bond Rollover : Recovery: They say that, as now worded, county’s plan to postpone repayment of about $1 billion in debt would violate a separate settlement involving them.
The committee representing participants in Orange County’s failed investment pool on Tuesday challenged a county plan to postpone payment of about $1 billion in outstanding bond debt for a year, saying the deal as currently worded would violate a separate, court-approved settlement relating to the investment pool.
Pool participants are not a party to the bond rollover deal, which a lawyer representing bondholders expected to be finalized as early as today. But they said they will object to it in court if their concerns are not satisfied during the final phase of negotiations.
“Their document is not even close to consistent with our comprehensive settlement agreement,†said Jon Schotz, financial adviser to the committee of pool participants. “There are land mines everywhere. We’re very concerned about it.â€
Schotz and Patrick C. Shea, the pool committee’s lawyer, met Tuesday afternoon in Los Angeles with county bankruptcy attorney Bruce Bennett, financial adviser Christopher Varelas, and representatives of the bondholders.
According to the proposed deal, the county would delay payment on about $975 million in note and bond indebtedness until June 30, 1996, paying bondholders an additional 95 basis points--or 95 cents for every $100 invested--in interest. The county must also promise not to later declare the debt invalid in court.
Schotz said pool participants have no problems with the basic tenets of the rollover plan, but are concerned that language in the document could be interpreted as making bondholders’ claims superior to pool participants’ claims in the county’s bankruptcy.
After nearly two months of confidential negotiations between the county and the committee representing bondholders, pool participants became privy to details of the deal just last week.
“They can’t do this deal without us going along with it, or else they’re going to run into some objections in court,†Schotz said. “They’d rather get us into it now.â€
Bennett and Robert Moore, the attorney representing bondholders and other county creditors, could not be reached for comment after the meeting Tuesday.
Meanwhile, in a separate prong of the recovery effort, a local water district announced plans to loan $35 million to school districts facing huge debt payments next month.
The Irvine Ranch Water District has offered the short-term “bridge loan†to the Newport-Mesa and Irvine unified school districts. The Orange County Department of Education has asked for a similar loan from the water district if it cannot secure alternate financing.
Those three agencies, along with the North Orange County Community College District, borrowed a total of $200 million in June of last year to increase their stakes in the county’s investment pool, and must repay the money by June 13. To meet this debt, the agencies are counting on money from “recovery notes†that the county promised in the pool settlement agreement. But there are now serious questions whether the the money can be made available to the schools in time for them to make their payment deadlines.
“We all need to protect one another,†said Peer Swan, chairman of the water district, which itself was one of the largest investors in the sunken pool. “This is a tough time. People that have the ability should try to work out a deal with people that are less fortunate in the tough time.â€
Under the water district offer, the school districts must repay the loans by June 4, 1996, or as soon as they receive income from the county’s recovery notes, other debt issuances or asset sales. Officials on both sides said the loans probably could be repaid within a month of being made.
“It’s certainly reassuring to us, considering the uncertainty of the present situation,†said Newport-Mesa Supt. Mac Bernd. “It’s more than neighborly. They’ve stepped up at a time when we’re really in need. We still feel that the recovery notes are going to come through, but there’s a gap and we’ve got to take care of it.â€
The Orange County Transportation Authority is considering a similar deal with the North Orange County Community College District and Placentia-Yorba Linda Unified, which also borrowed $50 million to invest in the pool.
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