Officials from the Orange County Sanitation Districts in California yesterday met with municipal executives from Lehman Brothers in an effort to help the agency recover from a $26 million technical default on its taxable commercial paper program.
The districts, which are managed by a single agency and account for 90% of Orange County's sanitation needs, haven't run out of cash yet, and fiscal officials are working on plans to postpone all but the most critical of the district's capital projects.
But the districts are facing additional problems with their finances. While the districts work with Lehman to recover from their commercial paper default, they must soon pay interest on their long-term debt.
In late January, the districts are required to pay $5.5 million in interest on $117.55 million of Series B bonds issued in 1992. Without help from the county, the districts will face another default, officials say.
Details of yesterday's meeting were not available by press time. But district officials said Richard C. Bain, director of Lehman's investment banking department, was scheduled to meet with their group, including the agency's financial manager, Steve Kozak, to discuss a strategy that would bring the districts some short-term relief.
The meeting, scheduled to begin at 1 p.m., pacific standard time, at the agency's offices in Fountain Valley, Calif., is designed to help the districts recover from a severe liquidity crisis that emerged following the Orange County bankruptcy.
The districts are one of the largest participants in the troubled investment pool once managed by former Orange County Treasurer Robert Citron.
The pool has experienced more than $2 billion of dollars in losses so far. On Dec. 7 and following the county's announcement that it would file for bankruptcy, $26 million of the district's commercial paper matured and Lehman became a creditor to the agency.
The district fell into technical default because it could not repay Lehman Brothers without access to money from the investment pool. The districts have $450 million in the county's pooled investment fund, which has been frozen by the bankruptcy proceedings.
"They [Lehman officials] are bringing to the table some new ideas to help with liquidity," Kozak said. "And we are going to brief them where we are vis-a-vis the county."
Bain of Lehman Brothers did not return a telephone call.
Kozak said the meeting with Lehman followed a lengthy discussion between the pool's 11 largest participants and county officials. Thomas W. Hayes, the former California state treasurer, was recently named to restructure the county's finances and develop a bailout plan.
County officials and pool participants discussed the cash flow needs during the next 60 days of the various municipal agencies that placed funds in the troubled investment fund.
County officials are expected to give pool participants details by the end of this week on when some money might be available. Kozak said the sanitation districts need about $2 million a week to meet its cash flow needs.
In terms of the technical default, Kozak is working with Lehman to develop a liquidity plan to roll over the $26 million in commercial paper that was put to the investment bank following the bankruptcy announcement. On Jan. 1 of this year, the districts issued $50 million of taxable commercial paper, underwritten by Lehman.
"We'd like to pay them off for the $26 million so we can get out of this technical default," Kozak said. "I'm hopeful. They're being very good to come up with some ideas to work this out. It's in their best interest too, of course."