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O.C. wants investment back

A British firm holding county funds is forced into receivership.

March 19, 2008|Christian Berthelsen | Times Staff Writer

The Orange County treasury is struggling to recover an $80-million investment in a complex British fund that was forced into receivership last month after it defaulted on payments to creditors, the county treasurer told the Board of Supervisors on Tuesday.

Under a decision by a British judge overseeing the fund's affairs, the earliest investors are to be repaid before more recent investors, which include Orange County, Treasurer Chriss Street told the board. Street and county lawyer John Abbott said the decision ran counter to how the default would have been handled in a U.S. court, in which all creditors would be treated equally and the available proceeds split evenly.

A creditors' committee is appealing the decision, but if it is upheld, the county may have trouble recovering any of its money. The two officials said the fund, Whistlejacket Capital Ltd., has $1.3 billion in cash but $6.5 billion in outstanding notes.

Asked by supervisors about the fund's underlying assets and whether they could be sold off to raise cash to repay investors, Street and Abbott said they were trying to get more information about them.

Supervisor John Moorlach said the court's judgment makes it seem unlikely that the county would be repaid, but the treasurer's office disputes that assertion.

Whistlejacket has been the biggest casualty thus far in Orange County's rocky foray into structured investment vehicles, complex investment pools that buy credit securities tied to mortgages, credit cards, student loans and other debts.

The county put $850 million, or 14% of its total portfolio, in structured investment vehicles, although it has since reduced its holdings in such securities. About half the investments faced a possible credit rating downgrade in December, but so far they have held up.

Street said Tuesday that the $80 million represented a small fraction of the county's overall portfolio and noted that the county's investments netted a return of $315 million last year -- implying that even if the county loses the Whistlejacket money, it would still come out ahead overall.

Half of the money came from the county's funds, and half came from an investment pool for 34 Orange County school districts.


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