O.C. investments lose market value as SIV nears default
The investment in England-based Whistlejacket is a small portion of Orange County's overall portfolio, but the once-bankrupt county remains gun-shy about financial risk.
Orange County's latest investments in complex financial deals took a turn for the worse Wednesday when a fund in which the county placed $80 million neared default after a major U.K. bank aborted plans for a bailout.
County officials said they expect the fund to miss a principal and interest payment to another investor today. That, in turn, would drive down the market value of Orange County's holdings.
County treasury officials said they were in the process of writing down the value of the holdings but did not yet know by how much. Still, they said they would hang onto the notes in the belief they will ultimately recover the county's investment in full, rather than lose money in a fire sale.
The fund, a $7.15-billion structured investment vehicle named Whistlejacket and backed by London-based Standard Chartered Plc., was forced into receivership last week and had its credit rating slashed.
The O.C. treasurer's office sent a memo to county officials Wednesday assuring them it would be able to meet the near-term cash needs of investors in the county portfolio, noting the troubled investments are held in a longer-term fund. The treasury invests the cash balances of the county and many local school districts.
The investment is a small portion of Orange County's overall $7-billion portfolio, but the county is still feeling the effects of its 1994 bankruptcy and remains gun-shy about financial risk.
The county invested nearly $850 million in structured investment vehicles, or 14% of its portfolio. Officials have been nervously watching since Treasurer Chriss Street disclosed in December that $460 million of the county's holdings in such investments faced a potential credit rating downgrade.
In December, as concern grew about the structured investment vehicles and Street fought off an effort to strip him of his investment powers, the treasurer assured board members and the public that the county's SIV holdings were "safe, strong and sturdy."
Asked if he stood by those comments Wednesday, Street said: "I made those comments based on the information available at the time. The markets are very fluid and there is unprecedented turmoil in the credit markets."
