LOS ANGELES -- Orange County's fiscal hemorrhaging worsened yesterday as it reportedly defaulted on a $110 million bond payment. In addition, the county sued several brokerage firms in an effort to keep its loss-plagued investment fund from collapsing.
Adding to alarm and confusion surrounding Tuesday's bankruptcy filing, the county, which pledged to meet all school and local government payrolls, acknowledged that it cannot pay all its outside suppliers.
"Some vendors are probably not going to get paid," County Administrator Ernie Schneider told a meeting of the Orange County City Managers Association at Irvine's City Hall.
Attempting to contain the crisis and reassure investors and taxpayers, the county yesterday named a financial expert formerly with the state as the new manager of its troubled fund and hired Salomon Bros. as an investment adviser.
The new manager is Thomas W. Hayes, a Republican former California auditor general and treasurer, who lost a 1990 campaign against Kathleen Brown for state treasurer and served on a government panel after the 1987 stock market crash.
Mr. Hayes, 48, replaces Robert L. Citron, who resigned as county treasurer Monday after disclosing last week that the investment fund had lost more than $1.5 billion because of interest rate bets that went bad. Orange County filed for bankruptcy Tuesday after it was unable to roll over a $2 billion loan with CS First Boston Corp.
"We bit the bullet and defaulted on a $110 million bond that was due today," Mr. Schneider said, according to Bloomberg Business News.
It is not clear which bond issue was affected by the county's default.
At the same time, in an attempt to protect the ailing fund, the county sued several brokerage firms that sold nearly $4 billion in collateral that the county claims was frozen by Tuesday's bankruptcy filing.
In addition to CS First Boston, those firms are Nomura Securities International and Smith Barney, which also sold securities backing loans.
County officials said other firms that sold securities held on the county's behalf since the bankruptcy will be added to the suit.
Among others, they include Prudential Securities, and Morgan Stanley.