Emerging from one of the country’s largest bankruptcies, Orange County is preparing its first long-term bond issue in almost a decade. County CEO Frank Kim said that 2006 was the last time Orange County issued long-term debt, and that the upcoming bond sale would not go beyond what is necessary to keep California’s third-most populous county prosperous.
Orange County plans to sell $68 million in lease-revenue bonds in order to finance an upgrade of the central power station in Santa Ana. The 20-year bonds will be priced to yield about 3 percent, a better rate than that offered by U.S. Treasury bonds. The lead underwriter of the bonds will be Wells Fargo and the issue is scheduled for late May.
John Miller, chief of fixed income investments at Nuveen Asset Management, predicts that the market will gobble up the nearly $70 million bond issue very easily. Municipal bond managers agree that Orange County is ready for its first large bond issue since emerging from bankruptcy in 2000 and that the market will easily absorb the issue.
Marilyn Cohen, CEO of Envision Capital Management, a Los Angeles-based municipal bond investment firm with more than $400 million of assets under management, says that the cloud of Orange County’s declaration of Chapter 9 bankruptcy in 1994 is long gone. The county declared bankruptcy in 1994 after a risky investment scheme run by the former county Treasurer Robert Citron unraveled and the county lost $1.64 billion. Citron was fined and served jail time for the scheme, but Orange County’s bonds were not restored to investment grade until late 2000.
According to Stephen Walsh, director of U.S. public finance at Fitch Ratings, Orange County has maintained a very solid credit ever since, thanks to a booming economy, high home valuations and consistent property tax revenue.
About $24.2 million of bankruptcy debt remains on Orange County’s books. The final payment is expected in June 2017. Lisa Bartlett, chair of the Orange County Board of Supervisors, said the Board wanted to keep the bond issuance low and relatively short-term in light of the 1994 bankruptcy and the remaining debt on the books.
Orange County is not alone in issuing new bonds. In the last week of April, California completed the sale of nearly $1.5 billion in general obligation bonds in a competitive auction. Yields ranged from 0.61 percent for very short-term bonds to 3.05 percent for 20-year bonds. Nearly $1 billion of the issuance was for refinancing existing higher-interest debt, and is the largest competitive sale of municipal bonds in more than 25 years. That cycle of issuing bonds to pay off bonds is what Orange County’s supervisors would like to avoid, but there is definitely a high-demand for investment grade debt from Sacramento and Santa Ana.
The clamor for California’s bonds is solid evidence that the market wants to invest in the state and its best counties, said State Treasurer John Chiang.
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