Moody's provides update on scheduled January 3 debt service payments for Orange County, California and county school districts

Business Wire, Dec 29, 1994

NEW YORK--(BUSINESS WIRE)--Dec. 29, 1994--The Orange County Board of Supervisors today took several actions to provide for debt service payments coming due on January 3.

However, it is not clear that these actions, taken just five days before the required payment date to bondholders, were approved in time to allow timely payment of debt obligations. The county's actions appear to represent a first step toward acknowledging that, while operating under the bankruptcy filing, debt obligations will be a priority.

At the same time, the county's decision to forego segregating funds for the repayment of the 1994-95 Tax and Revenue Anticipation Notes, as well as its decision to utilize the reserve fund to make payment on the Certificates of Participation, Series 1986, underscores the fact that the position of debtholders remains very tenuous.

The ratings on the county's obligations were suspended on December 6, when the county and the investment pool filed for bankruptcy because of large investment losses by the pool.

County Actions Regarding Debt Repayment

Moody's has been informed by officials of Orange County that today the Board of Supervisors authorized its bankruptcy counsel to seek permission from the Bankruptcy Court to withdraw sufficient funds from the county investment pool to make county interest payments coming due on January 3.

However, such payments are subject to approval by the bankruptcy judge, and, according to county officials, it is not clear that such approval will be obtained in time to allow debt service payments to be made when due on January 3. It is not clear what are the legal repercussions, if any, should interest payments be late. These payments are for interest on: 1994-95 Tax and Revenue Anticipation Notes, Series B; 1994-95 Taxable TRANs; Taxable and Tax-Exempt Teeter Notes; General Obligation Improvement Bonds; and Sanitation District No. 12 Sewer Bonds.

County officials have also informed us that the county will not follow the provisions of the resolution for the $169 million 1994-95 Tax and Revenue Anticipation Notes, which require segregation of funds for note repayment of $34.7 million in December and $18.7 million in January.

While the county's failure to set aside these monies raises serious concerns, the note resolution requires that ``any deficiency shall be satisfied and made up from any other moneys of the County lawfully available...''. It is too early to tell whether the county will be able to make up these amounts to make full and timely payment at note maturity on July 19, 1995.

County officials have also informed us that the $488,175 debt service payment due on January 3 for the Certificates of Participation, Series 1986, will be made from debt service reserve funds held separately by the trustee. After this payment, approximately $3.65 million will remain in the reserve fund.

The county also has a monthly interest payment due on its Series B Pension Obligation Bonds. Although the county indicated that interest is scheduled to be paid from a fully funded escrow account held outside the pool, the county could not confirm whether the January 3 interest payment will be made.

Update On School Districts' Debt

Officials from the county and the county board of education have confirmed that full and timely payment will be made on five school district obligations. While the districts are not bankrupt, their funds were held by the county investment pool and have been largely frozen. The January 3 payments will be made from district revenues received after the pool's bankruptcy filing; these post-bankruptcy revenues had been segregated into a new pool.

Finally, we have been informed that for pool participants other than the county, funds for respective tax and revenue anticipation notes will be segregated in accordance with the respective resolutions from post-petition monies of the participants.

Debt Service Due January 3

Orange County (1)

--Certificates of Participation, Series 1986 --General Obligation Improvement Bonds --Pension Obligation Bonds Series B --1994-95 Taxable and Tax-Exempt Teeter Notes --1994-95 Taxable Tax and Revenue Anticipation Notes --1994-95 Tax and Revenue Anticipation Notes, Series B --Sanitation District No. 12 Sewer Bonds

School Districts (2)

--Centralia School District --Irvine Unified School District --Placentia-Yorbia Linda Unified School District, 1994-95 Taxable

Notes --Santa Ana Unified School District --Yorba Linda School District (now Placentia-Yorba Linda Unified

School District)

(1) Interest payments. (2) General obligation, unlimited tax

bonds unless otherwise noted.

CONTACT: Moody's

             Barbara Flickinger, 212/553-7736
             Vice President/Assistant Director
                          or
             Karen Krop, 212/553-4860
             Assistant Vice President