SANTA ANA, Calif. - Orange County - an affluent, conservative Los Angeles suburb - has filed for bankruptcy to try to handle a $1.5 billion investment loss.
County officials Tuesday said they were forced to file for Chapter 9 protection after bankers refused to renew $1.2 billion in short-term loans.
Thomas Riley, supervisors chairman, says the county wants to deal with its problems "in an orderly manner."
The move will prevent local agencies from withdrawing their money from the county's beleaguered $7.5 billion investment fund and forcing a fire-sale of battered investments.
That would turn the paper losses into reality.
The filing "stops the panic," says Richard Zeisler, a lawyer who filed a similar action for Bridgeport, Conn., in 1991. It was later rejected by a judge.
If a judge accepts the petition, Chapter 9 gives the county time to assess the damage and work out debt repayment.
Vital services such as police will continue, says Riley.
The loss was revealed last week by county treasurer Robert Citron; he resigned Sunday.
Also Tuesday:
-- The Securities and Exchange Commission began investigating whether laws were broken by the fund's heavy use of borrowed Wall Street money and risky interest rate bets.
-- Wall Street chewed over reports that the county's losses may exceed $1.5 billion.
-- Demand for the county's securities collapsed. "There are no bids for bonds of Orange County," says Jeremy Ragus of Scudder, Stevens & Clark.
The $1.2 trillion municipal bond market rallied again Tuesday even as rumors swirled about the county's plans. What about today?
Randall Merk of Benham Group says Orange County's filing will be taken in stride.
But Richard Lehmann of Bond Investors Association disagrees: "The muni market is based on confidence and this will shake that confidence."
Orange County is the largest municipality to file for Chapter 9 protection.
