County Of Orange
Obtains Insurance From MBIA for Recovery Bonds
Santa Ana, California
- The County of Orange has received a commitment from
MBIA, a major provider of municipal bond insurance, to
insure the County's planned issue of approximately $275
Million of Recovery Bonds. This transaction, when completed
will represent the first post-petition financing in the
municipal bond market.
The Recovery Bonds represent the first component of the
County's Investment Pool Comprehensive Settlement Agreement
(the "Settlement Agreement") providing schools
and non-school participants recoveries of 90 cents and
80 cents of their original investment balance respectively.
As stipulated in the Settlement Agreement, which was approved
by the United State Bankruptcy Court on May 2, 1995, the
County is obligated to utilize its best efforts to provide
the schools with funds by mid-June 1995.
County CEO William Popejoy commented, "Obtaining
insurance from MBIA for the Recovery Bonds is a major
step in allowing the County to provide the schools with
the cash proceeds needed to avoid immediate insolvencies.
Although the Recovery Bonds address the immediate needs
of the Pool participants, the County still has to pass
Measure R in June as well as identify other new revenue
sources to satisfy the $2 billion in claims resulting
from the financial crisis."
To obtain the insurance, it was necessary that the Recovery
Bonds receive super priority status under Section 364(c)
of the United States Bankruptcy Code. This status was
accorded to the Recovery Bonds by an order entered by
Judge Ryan on May 2, 1995. Chris Varelas, vice president
of Salomon Brothers - the County's financial advisor,
commented, "Even though a substantial premium is
being paid due to the pendency of the County's reorganization
case, we believe the insurance affords the County significant
benefit in its recovery efforts." Paul Nussbaum,
advisor to the CEO concluded, "The cost of the Recovery
Bonds provides a dramatic illustration of the increased
expense to the taxpayers resulting from the County's bankruptcy
status and the need to complete the County's proposed
Financial Recovery Plan."
The insurance will be provided by MBIA, the leading provider
of municipal bond insurance in the country. Despite the
pendency of the County's reorganization case, the insurance
allows the bond issue to receive Aaa/AAA ratings form
Moody's Investor Service and Standard & Poor's Rating
Group. In addition to greatly enhancing the marketability
of the Recovery Bonds, the County's financial advisor
and underwriters estimate that the insurance will save
the County over $100 million in interest costs over the
life of the Bonds.
"MBIA is pleased to be able to play an important
role in enabling school districts and other pool participants
gain immediate access to critically needed funds. In addition,
this financing is an essential first step in the County's
return to fiscal health," said Neil Budnick, senior
vice president of MBIA.
One unique feature of the County's agreement with MBIA
is that the bond insurance company has agreed to provide
a substantial credit to the County to offset future insurance
premiums should the Recovery Bonds be refunded any time
during the next seven years.
The Agreement represents the culmination of months of
negotiations between senior MBIA management and the County's
financial advisor and underwriters. William Popejoy added,
"We are very appreciative of MBIA's responsiveness,
flexibility and objectivity on this transaction."
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