Orange County officials said Tuesday that the county's short-term investment pools held about 14% of assets in a type of IOU that some big investors had been shunning because of credit-quality concerns.
The county has about $830 million of its $6 billion in fund assets in debt issued by so-called structured investment vehicles, or SIVs, said Keith Rodenhuis, a spokesman for Treasurer Chriss Street.
Paul Cocking, the county's chief portfolio manager, said the debt was "all highly rated."
But about $460 million of the IOUs has been issued by borrowers that have been placed under review for a possible credit downgrade by Moody's Investors Service. A downgrade could make the debt difficult to sell.
The county invests short-term cash for itself and for local school districts.
In Florida, a statewide fund that pools cash investments for local municipalities was forced to halt withdrawals last week after some of the municipalities fled because of worries about some of the SIV debt the fund held. On Tuesday Florida officials announced a plan to reopen the portfolio for limited withdrawals from its remaining investors.
Structured investment vehicles are specialized funds that borrow using short-term debt to buy longer-term assets, such as mortgage-backed bonds.
Some SIVs invested in bonds backed by sub-prime mortgage loans. As home loan defaults have soared this year, the value of securities tied to sub-prime mortgages has plunged.
The Florida fund, which had $27 billion in assets at its recent peak, held $2 billion of dicey securities, including sub-prime mortgage-backed paper issued by SIVs.
Orange County officials said the SIV debt their funds held continued to pay interest and that virtually none of it was tied to risky U.S. mortgages. "We don't have the same kind of debt that Florida has," Cocking said.
SIV debt attracted investors because the interest rates the IOUs paid were higher than rates on many other short-term investments.
Still, some other California funds that invest the cash balances of municipalities say they have stayed away from SIV debt entirely. The $61-billion Pooled Money Investment Account managed by state Treasurer Bill Lockyer said last week that it owned no SIV paper.
Orange County filed for bankruptcy protection in 1994 after its investment pool imploded because of aggressive bets then-Treasurer Robert Citron made on the direction of interest rates.
Current Treasurer Street has faced increased scrutiny by Orange County supervisors this year because of questionable management practices related to his spending. The supervisors were already planning to vote next week on whether to allow Street to continue overseeing the county's investment portfolio.
In Florida, the workout plan for its troubled fund will split the portfolio into one pool of high-quality debt and a second pool of mortgage-backed securities. Investors will be able to redeem cash from the high-quality pool, but would pay fees for large withdrawals.