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Q: Orange County bankruptcy: if I put $1 in bonds, how much would I get back? ( No Answer,   1 Comment )
Question  
Subject: Orange County bankruptcy: if I put $1 in bonds, how much would I get back?
Category: Business and Money > Finance
Asked by: reese-ga
List Price: $5.00
Posted: 21 Sep 2002 14:44 PDT
Expires: 24 Sep 2002 02:26 PDT
Question ID: 67646
On December 6, 1994, Orange County declared bankruptcy. The country
treasurer lost $1.7 billion in investments.  After 18 months, they
reemerged
from bankruptcy.  If you put in $1 into bonds before the bankruptcy,
how much did you get back when after?
Answer  
There is no answer at this time.

Comments  
Subject: Re: Orange County bankruptcy: if I put $1 in bonds, how much would I get back?
From: aceresearcher-ga on 23 Sep 2002 09:25 PDT
 
According to a December 22, 1995 New York Times article
(http://www.saybrook.net/graphics/pdf_files/nyt_adopt.pdf), Orange
County planned to repay bondholders in full:
"At the heart of the bankruptcy escape plan is the diversion of $50
million a year in road, park, harbor, and other revenue ... selling
$20 million in property ... another $15 million a year could be made
by importing trash from other counties. It is possible, however, that
the dump system could be sold."

"For the plan to succeed, the county must still find buyers for $550
million in certificates of participation, new bonds whose proceeds
will repay current bondholders, vendors, and some other high priority
debt."

A Los Angeles Times article by Dennis Lowe on May 16, 1996
(http://www.saybrook.net/graphics/pdf_files/lat_apprv.pdf), outlines
the final details of the recovery plan as approved by Bankruptcy Judge
John E. Ryan and states that according to the plan, the 187 local
agencies and governments that participated in the county's investment
pool "will be reimbursed at least 77 cents on the dollar".

According to an article by Philippe Jorion of the University of
California at Irvine's Graduate School of Management
(http://www.gsm.uci.edu/~jorion/oc/case.html), Orange County was able
to recoup around $865 million
(http://www.gsm.uci.edu/~jorion/oc/case6.html) of their $1.64 billion
loss through lawsuits against investment firms (including $437 million
from Merrill Lynch) and other entities who may have shared culpability
in the poor investment decisions leading to the disaster.

A 2000 Los Angeles Times article by Megan Garvey states that a group
of 14 California cities and agencies (dubbed the "Killer Bs" because
they chose Option B of the recovery plan) received more than $57
million, resulting in nearly 100% returns of their initial investment.
"That's better than the 97% recovery for schools and 93% recovery for
other agencies and cities that made up the far larger group of
investors that took the $420 million Merrill Lynch settlement reached
in 1998. The county itself recouped only 35 cents on every dollar
lost."

A detailed examination of the Orange County investment fiasco is
available in the book "When Government Fails: The Orange County
Bankruptcy" by Mark Baldassare
(http://www.amazon.com/exec/obidos/ASIN/0520214854/102-3090948-2974519).
Bellwether Publishing, Ltd's lengthy review of this book is available
at http://www.bellpub.com/ug/1999/ad990510.htm .

Hope this answers your question!

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