The two largest municipal credit rating companies are likely to report that the investment pool disaster in Orange County, Calif., may well be an isolated instance.

Officials at Moody's Investors Service and Standard & Poor's Corp. say they been surveying issuers of municipal debt all over the country about their investment practices in response to Orange County's investment troubles and the impact it has had on the county's ability to repay bondholders.

Although the surveys are not complete, the results so far show that a meltdown of an investment fund on the magnitude of Orange County's is not about to happen elsewhere anytime soon.

When asked if there are many other situations analogous to Orange County's, Dan Heimowitz, director of public finance at Moody's, said, "It's only appropriate that we complete our surveys and be through before we make statements which in any way give implications one way or another."

Heimowitz added that "obviously if we saw something horrendous we would be out with it quickly ... We've been talking to a lot of people and we haven't found anything to make us sound an alarm."

Jane Eddy, a director at Standard & Poor's, said the company also hasn't come across anything of the magnitude of Orange County. "None that we've seen," Eddy said. "We really don't suspect there are any other ones in any of the significant large funds."

Eddy added that the rating company may issue some downgrades in the coming weeks of bond issuers because of their investment practices. "If their [investment] losses are significant, it's possible" there will be downgrades, Eddy said, but "it's not a panic situation. Orange County is somewhat unique."

Last week, Orange County filed for Chapter 9 bankruptcy after reporting a loss of $1.5 billion in its pooled investment fund. This week, the county said losses have grown to at least $2.02 billion. Since the bankruptcy filing, the county, as well as at least one pool participant, has defaulted on its debt.

Moody's and Standard & Poor's have downgraded to speculative grade Orange County debt that is not insured. The rating companies have also placed on review the debt of municipalities and agencies that have funds invested in the pool.

Officials at Standard & Poor's say they will be issuing statements on their findings as reviews are completed. Moody's will issue a statement in coming days.

The debacle in Orange County has raised concern that many other large municipal issuers face similar problems with their investments.

Following the county's bankruptcy announcement, market pundits said that Orange Countys could be found in every state, and possibly in every county.

Several market observers said the Orange County fund's use of leverage and investment in risky derivatives had been replicated by scores of municipalities looking to make a quick buck.

In response, several major investors of municipal debt launched efforts similar to those mounted by the bond raters.

At one buyside firm, analysts spent the past two weeks examining the investment practices of every municipality in the firm's portfolio.

The results of the firm's review are not available, but according to officials at Moody's and Standard & Poor's, they have not found any municipal issuer that has engaged in risky practices on the magnitude of Orange County.

"We haven't seen anything that dramatic," Eddy said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.