LOS ANGELES -- In the first sale of high-risk derivatives held by Orange County, Calif., brokers working for the bankrupt municipality yesterday unloaded $630 million of structured notes issued by the Federal National Mortgage Association.

Fannie Mae agreed to buy back the securities at a discount, following two weeks of negotiations between the federally chartered agency and the county's financial adviser, Salomon Brothers Inc.

A spokesman for Fannie Mae, the nation's largest home mortgage lender, would not comment on the purchase price, except to say it was "fair for both sides of the table."

"No one is doing anyone any favors, but this has certainly been a cooperative, helpful relationship," said David R. Jeffers, Fannie Mae's vice president for corporate relations.

The structured notes -- a large portion of which were made up of extremely interest-rate sensitive derivatives called inverse floaters -- are the same type of investments that contributed greatly to a $2.02 billion loss for the county's investment portfolio.

Rising interest rates gutted the value of those notes and other risky investments made by the county, triggering its Dec. 6 bankruptcy filing. The county still holds a little less than $4 billion of these complex securities and plans eventually to sell them all at a loss.

County officials did not return phone calls yesterday, but they have said in the past that they plan to use the cash to buy new "plain vanilla" securities to ensure the future safety of county funds.

Yesterday's sale was seen as a positive step in that direction, provided that the county sold at the price it has asked for in the past -- around 84 cents on the dollar.

"If they can get at least 84 cents on the dollar, or more, then that's good news," said John Moorlach, a Costa Mesa accountant often named as a possible successor to county treasurer-tax collector Robert L. Citron, who resigned.

"Because these structured notes have no secondary market, this is basically a good move," Moorlach said. "It is one of the few moves they have available."

A Salomon Brothers spokesman in New York refused to comment on the sale yesterday afternoon. He said the firm planned to release a statement later in the day.

Fannie Mae's Jeffers said previous news reports that the county and the agency were entering into a securities swap were incorrect. He said Fannie Mae paid cash for the notes, and will not assume any of the risk associated with them.

"When we buy back our own securities, we are essentially canceling them," Jeffers said. "Since we issued them in the first place, the obligation no longer exists."

Jeffers said the sale began at 9 a.m. yesterday and involved 10 separate transactions. He was unsure if this was a first-of-its-kind agreement, but he said, "I guess it could be, in that the whole Orange County situation is a first of its kind."

In the past two weeks, Salomon Brothers on behalf of the county has sold more than $3.3 billion of securities, but until yesterday, they were all conventional, easy-to-sell paper.

Salomon Brothers is reportedly hoping to arrange similar buy-backs or swaps on securities issued by three other agencies -- the Federal Home Loan Banks, the Federal Home Loan Mortgage Corp., and the Student Loan Marketing Association.

In other Orange County developments:

* The Board of Supervisors on Wednesday afternoon authorized payment of $3.9 million in interest due Jan. 1 on six bond issues, subject to bankruptcy court approval.

But the board also suspended a December $34.7 million set aside and a January $18.7 million set aside for payment of principal on its Series A tax and revenue anticipation notes.

The county's lead bankruptcy attorney, Bruce Bennett, said the decision to forgo the set-asides was made because of the county's need to "meet short-term operating commitments."

* Responding to a flurry of news reports that the county wants to sell John Wayne Airport, a miffed supervisor called an impromptu press conference Wednesday afternoon to tell reporters that "Orange County is not for sale."

Gaddy Vasquez, chairman of the Board of Supervisors, said the county is considering selling dozens of assets, and the airport is just one of many options.

* The cities of Santa Ana and Montebello announced Wednesday that they had received enough funds from the county investment pool to meet most of their upcoming debt obligations.

Santa Ana said the county wired $5.24 million to cover a Dec. 15 debt service payment, and Montebello said it received $14.1 million for a payment due today.

* The Huntington Beach city council voted Wednesday night to sue the county if an agreement is not reached by Jan. 6 to release all city property tax revenues being held in the now-frozen pool.

Officials in Costa Mesa indicated that they may do the same.

* The county's largest employee union again threatened to file a lawsuit if the supervisors continue with plans to disregard all negotiated agreements and lay off hundreds of county workers.

John Sawyer Jr., general manager of the 11,000-member Orange County Employees Association, said the union will probably file its suit early next week.

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