Postponing O.C.’s Day of Reckoning : Rollover--at a Cost of $29 Million--Has Only Bought Time to Form a Financial Plan

Clearly, there was some room to breathe but little room for celebration in the extension of Orange County’s huge debt. It was approved last week by U.S. Bankruptcy Judge John E. Ryan. There are some on Wall Street who apparently do not see much difference between deferring a repayment date on $800 million in Orange County notes and defaulting on them entirely. At the same time, a number of county creditors went along with the county’s rollover of debt for at least one year not out of any enthusiasm for the strategy but because there was little choice.

As it was, a number of the attorneys for county vendors and local governments that lost money in the county’s investment pool filed last-minute court appeals to the debt rollover. But the agreement that came about managed to put off outright default, and it managed to keep state involvement at bay for the time being. The county did get tweaked once more when Standard & Poor’s Corp. said the failure to repay $600 million in notes originally due amounted to one of the largest defaults by a government agency in history.

The bottom line still remains that the county has no method of repaying its debt, and has merely postponed the day of reckoning.

There was the modestly encouraging possibility that if San Diego County raises its tipping fees, Orange County might be able to more successfully lure trash haulers from San Diego County. The plan for bankruptcy recovery includes inviting haulers in hopes of earning millions of dollars a year in additional revenue. But it was hardly cash on hand, and constituted, at most, the hope of progress.

So maybe it will go like this, with small steps.

The county is now exploring other sources of tax revenue after the sales tax proposal’s defeat. The cost for an extra year of interest on notes, plus the bonus interest promised by the rollover, totaled nearly $29 million.

Meanwhile, the state has said it will not allow the county to repudiate the debt. At the moment, it is positioned to allow the county to run its own affairs only so long as there is no detrimental effect on state finances. The bottom line is that Orange County has won some time, but it has not found a sure-fire way out of bankruptcy, and must redouble its efforts.