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S&P Sees High Level of Risk in Counties in California

June 22, 1995|From Bloomberg Business News

Just months after investments in leveraged "derivatives" drove Orange County into bankruptcy, half the state's counties surveyed by Standard & Poor's Corp. take more investment risk than the rating agency deems prudent.

Of 25 counties studied, 13 own more derivatives, use more leverage or make longer-term bets in an effort to boost their returns than S&P recommends.

The seven counties that own derivatives or use leverage and have portfolios with a longer-than-recommended maturity are Alameda, Monterey, Placer, San Bernardino, San Diego, Solano and Sonoma. Six counties violate S&P's guidelines on just one point: Butte, Humboldt, Kern, Riverside, Sacramento and San Francisco.

S&P found that the counties have enough money on hand to cover potential losses. And some have unloaded derivatives that at one point were worth less than their purchase price.

Still, "if I was a taxpayer, I would hope my treasurer would exercise more prudence in running the portfolio," said Kris Rao, a study co-author at S&P.

Meanwhile, Moody's Investors Service released a report saying that six California's counties it studied had reduced the risks they take with derivatives and leverage since a December study.

But Moody's said it will keep a close eye on San Diego, Placer and Solano counties to check "on progress toward reducing risk profiles."

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