REGION : Investment Pool Woes Hurt Housing Bond Sale

The fallout from Orange County’s financial woes has been felt in three Southeast-area cities that jointly sold $20 million in tax-exempt housing bonds last week.

Hawaiian Gardens, Norwalk and Paramount had a tougher time selling the bonds and ended up paying more for them than anticipated because of the Orange County investment pool’s troubles, said Richard Leahy, Paramount’s assistant city manager.

Before the financial crisis surfaced, about 40 insurance companies, banks, mutual funds and other major investors expressed interest in the housing bonds, said the cities’ investment banker, Jim Chilton of Chilton & O’Connor Inc. in Newport Beach. But many investors declined to buy the bonds after Orange County sought protection under the U.S. Bankruptcy Code, he said.

“Historically, we’ve been able to sell municipal bonds relatively easily, but this one was dramatically more difficult,” Chilton said.

The bond buyer, whom Chilton declined to identify, also demanded a higher return on its investment. The bonds were sold at 4.5% interest, up from the 4.2% rate that the cities had expected to pay, Leahy said.

The bonds will provide funds for the three cities to help residents with low or moderate incomes buy their first homes or upgrade existing housing.