O.C. Gets OK to Use Its Buildings as Collateral

U.S. Bankruptcy Judge John E. Ryan on Tuesday agreed that bankrupt Orange County could pledge its jails and other buildings as collateral to settle litigation brought by creditors holding about $165 million in county-issued notes.

Under the agreement, the county will sign over an interest in eight properties instead of depositing much-needed cash in a reserve fund to pay the noteholders.

The agreement also calls for the creditors to drop what promised to be costly litigation challenging the county’s refusal to make monthly set-asides to redeem the notes--a promise made when the notes were sold in the summer of 1994.

During a brief hearing Tuesday in Bankruptcy Court, county bankruptcy attorney Bruce Bennett told the judge that the deal was struck after a “long and torturous process.”

He said the county plans to pay the noteholders in full under a plan of adjustment that is expected to be filed in court by Jan. 1.

The litigation involved creditors holding county tax and revenue anticipation notes, known as TRANs, which most local governments sell to raise money to tide them over until property tax revenues begin to flow in.

To repay these noteholders, the county pledged to make cash deposits into a reserve fund on a monthly basis. It had put aside about $30 million before December of last year, but when the county declared bankruptcy that month, officials argued that they had no obligation to make the set-aside payments.

Ryan agreed, but in July, U.S. District Judge Gary L. Taylor reversed the bankruptcy’s judge’s decision, ruling that the county must craft a plan to repay the $165 million to creditors.

County bankruptcy attorneys later proposed an out-of-court settlement to the noteholders’ attorneys.

On Tuesday, Judge Ryan commended Bennett and the noteholders’ attorneys for “resolving the issue, which has been a difficult one not only for you but for the court as well.”