Press Releases

County Of Orange Obtains Insurance From MBIA for Recovery Bonds

County Executive Office - Press Release

COUNTY OF ORANGE
CEO
  FOR IMMEDIATE RELEASE
May 15, 1995

County Of Orange Obtains Insurance From MBIA for Recovery Bonds


(Santa Ana, CA)
- 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."