CHICAGO -- Cuyahoga County, Ohio, sold $265 million of short-term securities late last week from its nowdefunct government investment pool to help pay off $246 million of tax-and current-revenue notes that mature Dec. 30.

The Thursday sale resulted in a loss of $14.5 million, leaving the county $250.7 million for the principal and interest payment on the notes and for other cash flow needs, according to Dennis Roche, a county spokesman.

According to Roche, proceeds from the sale, along with $121 million of available cash, will enable the county to make the principal and interest payment on the taxable notes, which were sold with an interest rate of 4.17%.

"We've got the [notes] covered," Roche said. "They're nailed down."

In addition, the county has agreed to escrow the necessary funds for the payment. Roche said that the county was complying with a request from Standard & Poor's Corp., which rates the notes SP1-plus.

Diane Brosen, a director at Standard & Poor's, said the rating agency decided it would be "more comfortable" if the money were held with a third party trustee in view of the county's investment problems.

She said that county officials also verbally agreed to allow the rating agency to review how money in the escrow account will be invested.

Jeanne Wilson, an assistant vice president at Moody's Investors Service, which rates the notes MIG-1, said the rating agency plans to put out a comment on the rating once it has received documentation from the county concerning the retirement of the notes.

"They've taken action and at first blush it's a positive action, but we need to see documentation," Wilson said.

Moody's placed the county's short-term rating and long-term rating of Aa on review after Cuyahoga County commissioners earlier this month shut down the county's Secured Assets Fund Earnings, or SAFE, fund in light of undisclosed investment practices and investment losses.

Proceeds from the note sale had been invested in the SAFE fund to purchase long-term securities, according to Roche.

He said that the county and financial experts it has hired are still trying to determine the extent of investment losses in the portfolio, which once contained $1.1 billion of public funds from the county and about 75 cities, villages, school districts, and other counties in Ohio.

The county has returned all the principal invested in the SAFE fund to the other governments. The SAFE fund still contains a leveraged portfolio of $633 million of intermediate-term treasuries and another $153 million of mostly treasury bonds, Roche said.

If the fund were marked to market, he said the county would face a loss of $116 million. However, he added that it is being determined whether some of the investments will be liquidated or hedged.

The fund had been run by Cuyahoga County Treasurer Francis Gaul, a Democratic candidate for Congress in the Nov. 8 election. Gaul agreed to the fund's shutdown after the Cleveland Plain Dealer reported that the fund had concealed entering into a reverse repurchase agreement, as well as leveraging the note proceeds in an effort to bolster falling rates of return for investors.

Roche said that no illegalities have been found in how the money was invested, but that preliminary informational discussions have taken place with the county prosecutor's office.

He said the county has not ruled out seeking legal action against firms that sold securities to the SAFE fund, adding it is not clear which firms were servicing the fund.

"The transactions were all legal under Ohio law, the question is whether they were suitable," Roche said.

Cleveland-based McDonald & Co. Securities, Inc., may also be questioned in the future for its role in the SAFE fund, Roche said. McDonald was the senior manager for the $246 million note issue and for a similar $130 million taxable-note issue by the county last year. Proceeds from that issue were also invested in the SAFE fund.

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