(MOODYS) Moody's Addresses Credit Quality of Orange Co., CA,
Refunding Recovery Bonds
NEW YORK, New York--June 12, 1995--Orange
County,
California, plans to sell $295 million Refunding Recovery Bonds
tomorrow, June 13. Moody's will rate the bonds Aaa based upon an
insurance policy provided by MBIA, although aspects of the insured
transaction warrant further discussion. In addition, Moody's is
providing comment on the underlying credit quality of the bonds.
The bonds represent one component of the county's attempted recovery
plan and, as such, have a bearing on the outcome of this
unprecedented bankruptcy. Moody's continues to watch these
developments closely, and we will continue to comment on all
financings, whether credit enhanced or not, for the implications on
the county and more broadly on the public finance market.
Aaa Rating Based on MBIA Claims Paying Ability and Commitment
The Refunding Recovery Bonds will be used to partly compensate
for losses to participants in the Orange County Investment Pool.
The county's deadline for meeting that obligation is June 16. The
Superior Court of California entered its default judgment on
validation proceedings for the bonds on Monday, June 5, that the
bonds are valid obligations issued in accordance with state law.
The county presently plans to deliver the bonds on June 16 in
accordance with its deadline to participants. This transaction is
fully insured, and we have received assurance from MBIA that the
policy covers the validity of the underlying bond obligation.
Underlying Credit Quality Linked to Well-Below Investment Grade
Debt Outstanding
The Refunding Recovery Bonds must be examined in the context of
the county's bankruptcy and present state of distress. As we have
stated previously, any new debt obligation of the county would have
to be financially and legally insulated from the county to have
credit quality above the county's current long term debt rating of
Caa. Under the current circumstances, the credit quality of the
Refunding Recovery Bonds, absent the insurance, would be
substantially below investment grade for reasons outlined below.
The bonds present appropriate elements of protection, but there is a
presumption that current problems will be solved: either the sales
tax will be approved by voters, or the county will have sufficient
budget flexibility in the future, notwithstanding legal pressure and
uncertainity of access to the markets for cash flow. In fact,
events to date point in the opposite direction and include the
county's threat of debt repudiation.
Legal Structure Uses Bankruptcy Tools and State Intercept
The bond indenture provides five levels of security:
(1) The bonds have a general obligation pledge, payable from all
lawfully available funds. The county cannot raise taxes to pay debt
service. (2) Debt service has a super administrative priority claim
under Section 364(c)(1) of the Bankruptcy Code. This claim would
expire when the county emerges from bankruptcy. (3) Under Section
364(c)(2) of the Bankruptcy Code, debt service has a priority lien
over the interests of other general creditors, including existing
debt holders. (4) In addition, the county has pledged to the payment
of the bonds the Motor Vehicle License Fees collected by the state
and distributed by formula to cities and counties. (5) The county
has elected in the indenture to have the state intercept the Motor
Vehicle License Fees and provide them directly to the trustee for
payment on the bonds. This mechanism results from legislation (SB-8)
recently enacted by the state to assist Orange County.
Limitations on Security
The indenture provides an enhanced degree of security to
bondholders. However, its value is limited. First, Chapter 9
bankruptcy is intended to enable the municipal entity to continue
operations while addressing its claims. The superpriority lien and
senior claims granted to the bonds are thus subordinate to the
county's operating costs, particularly its obligations to meet the
health, safety and welfare needs of its residents. The bankruptcy
court cannot interfere with the exercise of these police powers.
Further, the county has specifically made the superpriority lien
junior to payment of the county's attorneys and consultants.
The pledge of the Motor Vehicle License Fees to the bonds
dedicates a revenue stream that averages $90 million per year to the
repayment of the bonds. The intercept recently approved by the
legislature provides a mechanism that potentially removes the county
from the flow of funds to the bondholders; however, the intercept as
enacted in SB-8 does not protect bondholders against future
bankruptcy. Further, the state is not limited in its ability to
alter the funding formula and divert revenues from the county.
Given the potentially competing interests of the debt service
and the county's operational obligations, these security features
must be examined in the context of the county's ability to afford
the debt. Orange County's discretionary general fund budget for
fiscal 1996 is 40% lower than the 1995 budget with a 16% decrease in
staff planned, yielding reduced services throughout the county.
These cuts are untested, and could impair the county's ability to
meet the fundamental health, safety and welfare obligations to its
constituents. Difficulty meeting these operational requirements
could result in litigation that might interrupt the flow of funds
for debt service on these bonds.
Even if the county is successful with its budget cuts, they
remain inadequate to meet all obligations. Without the 1/2 cent
increase in the sales tax, which voters will consider on June 27,
the county does not have a viable plan to repay all its debt. The
sales tax continues to receive no support from the Board of
Supervisors, and passage is far from certain.
The lack of effort by the county in paying the Recovery Bonds is
most evident in the debt's structure. The up front cost of the debt
is minimal The county will pay interest only for the next five
years, and only begin principal amortization in the sixth year.
Teeter bonds will be issued shortly to refund outstanding notes and
provide revenues to the county. These revenues result is a zero net
cost for the Recovery Bonds in 1996.
Credit Quality Reflects Ability and Effort
While the Refunding Recovery Bonds are separately secured from
the county's other obligations now rated Caa or SG (Speculative
Grade), they are not insulated financially and legally from the
county. Their credit quality remains entwined with the county's
other obligations. We cannot review the credit quality of one
obligation in isolation while the county is approaching default on
other obligations.
The county has proposed an extension with holders of other notes
due this summer, while retaining its rights to invalidate certain of
these obligations. The county also continues to use reserve funds
to make payments on its certificates of participation and, again,
has retained the right to seek to invalidate of these obligations.
The sales tax that could make the county's recovery plan achievable
may lack the support needed for a successful vote. Without an
intensive effort by the county to address its revenue requirements
and honor all of its debt obligations, the credit quality on the
Refunding Recovery Bonds, absent credit enhancement, is consistent
with the county's other obligations, which are well below investment
grade.
CONTACT: Mary Francoeur
Assistant Vice President
212/553-7240
or
Karen S. Krop
Assistant Vice President
212/553-4860
or
Barbara Flickinger
Vice President and Assistant Director
Manager, Far West Regional Ratings
212/553-7736
or
Katherine McManus
Vice President and Assistant Director Manager,
Legal Analysis Group
212/553-4036
(OCTA-BUDGET) OCTA approves $602 million budget for FY 95-96; $1
million a day pumped into local economy
ORANGE, Calif.--June 12, 1995--The Orange
County Transportation Authority (OCTA) board of directors Monday approved a
$602 million budget that decreases staff, increases street and road
and freeway investments, expands commuter rail service and maintains
existing bus operations.
The spending program presents a financially prudent plan for
OCTA services and programs. The budget continues to meet the
mandates of Measure M in what has been a climate of economic
adversity due to the County of Orange bankruptcy.
The budget is for OCTA's new fiscal year which begins July 1. It
includes the impact of last December's bankruptcy. Despite the
challenges, the OCTA budget is putting $1 million a day into the
local economy.
The new budget reflects the incorporation of new OCTA
responsibilities, namely the addition of an OCTA Treasury Management
Office and the implementation of strict investment policies and
procedures.
New efficiencies also were added to the budget proposal with
changes to bus service for better customer service and to make the
bus system operate more effectively. The bus changes incorporate
findings from a systemwide study and respond to a cut in federal
operating dollars.
A portion of OCTA's management information system also will be
outsourced under the newly approved budget.
"Next year's transportation services and programs will continue
uninterrupted to serve Orange County residents at a high level but
in a continued difficult economic environment," said OCTA Chairman
Chuck Smith. "OCTA also will pursue new private sector
opportunities that benefit the agency," he added.
Once again, a significant portion of the budget is comprised of
projects approved and funded by Measure M, the county's half-cent
transportation sales tax. Non-Measure M spending includes marketing
the redesigned bus system and completing a study to modernize the
radio system used to track the Authority's buses.
This year's budget is the fourth consolidated budget since OCTA
was formed from a myriad of separate transportation agencies. The
new OCTA budget also is more than 70 percent outsourced by the
Authority for construction, engineering design, professional
services and contract transportation.
The new budget reflects another reduction in the OCTA workforce.
A staff of 1,512 will be in place, which is down from a staff of
1,584. The staffing reduction also reflects a lower budget for
salary and benefits. Since 1991, OCTA staffing has been reduced by
approximately 15 percent. A great number of these cuts have been
administrative jobs.
CONTACT: Orange County Transportation Authority
Elaine Beno, 714/560-5571
GRAND UNION ANNOUNCES 4TH QUARTER AND FISCAL 1995 RESULTS
WAYNE, N.J.--June 12, 1995--The Grand Union Company,
a regional retail food chain, announced that Operating Cash Flow
(EBITDA) was $14.9 million, or 2.8% of sales, for the 12 weeks ended
April 1, 1995, compared to $42.5 million, or 7.4% of sales, for the 12
weeks ended April 2, 1994. EBITDA was $135.6 million, or 5.7% of sales
for the 52 weeks ended April 1, 1995 ("Fiscal 1995"), compared to
$180.1 million, or 7.3% of sales for the 52 weeks ended April 2, 1994
("Fiscal 1994").
Grand Union filed a voluntary petition for protection under Chapter 11
of the U.S. Bankruptcy Code on January 25, 1995. The company's Plan of
Reorganization was confirmed by the U.S. Bankruptcy court on May 31,
1995, and the company expects the effective date of the reorganization
to be on or about June 15, 1995.
EBITDA for the 12 weeks ended April 1, 1995, was significantly
affected by reduced sales in existing units and, as in the third
quarter, by declines in promotional allowances and other vendor
support resulting from the company's restructuring. Additionally,
EBITDA for both the 12 weeks ended April 1, 1995, and all of Fiscal
1995 was affected by low investments in forward buy inventories and
the costs associated with a promotional pricing program introduced in
the second quarter in the company's Northern Region. EBITDA during
Fiscal 1994 was reduced by an estimated $8.0 million as a result of a
22-day work stoppage in May 1993.
EBITDA is defined as earnings before LIFO provision, depreciation and
amortization, provision for store closings, reorganization items,
charges relating to pension settlement and early retirement programs,
interest expense, income taxes and cumulative effect of accounting
change.
Sales for the 12 weeks ended April 1, 1995, were $524 million, an 8.5%
decrease from sales of $573 million for the 12 weeks ended April 2,
1994. Sales for Fiscal 1995 were $2.392 billion, a 3.5% decrease from
sales of $2.477 billion in Fiscal 1994. The sales decline during the
fourth quarter of Fiscal 1995 as compared to Fiscal 1994 primarily
resulted from the closure or sale of 20 stores as a part of the
company's restructuring, publicity surrounding the bankruptcy
proceeding and the negative effect on sales of a milder winter this
year, partially offset by increased sales from stores which were
newly-built or renovated earlier this year. Sales comparisons are also
affected by the timing of the Easter holiday shopping period which did
not occur during the 12 weeks ended April 1, 1995, but did occur
during the 12 weeks ended April 2, 1994.
In addition to the above factors, the company experienced sales
declines during all of Fiscal 1995 due to competitive store openings
and weak economic conditions and an increased emphasis on
value-oriented products in the Northern Region.
Sales comparisons between Fiscal 1995 and Fiscal 1994 are also
affected by the exclusion from Fiscal 1995 (and inclusion in Fiscal
1994) of the holiday shopping period preceding Easter and the effect
of the work stoppage experienced during the first quarter of Fiscal
1994. Same store sales decreased 6.6% for the 12 weeks ended April 1,
1995 and 4.8% for Fiscal 1995.
Joseph J. McCaig, president and chief executive officer, said, "Fiscal
1995 results reflect the challenge of approaching and then operating
under Chapter 11. While the penalties we endured were significant, we
concurrently identified and corrected Grand Union's major weaknesses,
including the closure of 20 unprofitable stores. We are currently in
the process of closing our Waterford, N.Y. Distribution Center and
implementing an arrangement whereby our 127 Northern Region stores
will be supplied by C&S Wholesale Grocers Inc., at significantly lower
cost. We also repositioned our pricing structure in the Northern
Region on May 1 to be much more competitive in that key market."
"With the cooperation of our creditors," McCaig said, "we will emerge
from bankruptcy with a much improved financial structure, enabling us
to resume solid growth in the future."
McCaig said the company currently has replacement stores under
construction in Valatie, NY, and Morrisville, Vt., as well as an
enlargement of an existing store in Darien, Conn. In the next few
weeks, the company will commence construction of a new store in
Tannersville, N.Y., and enlargements of existing stores in West Islip
and Lake Placid, N.Y.
The company's capital plan, McCaig said, calls for a total of 35 major
projects, including six new and 11 replacement stores, six
enlargements and 12 renovations over the next two years as well as the
acceleration of capital spending on store systems.
"Most importantly," McCaig said, "thanks to the dedicated efforts of
our 17,000 associates during the last six months and the full support
of our suppliers, we managed to protect the valuable customer
franchise in the Northeast that our company has built over the last
123 years."
"With the leadership of Roger E. Stangeland, retired Chairman and
Chief Executive Officer of The Vons Companies, Inc., as our Company's
new Chairman of the Board," McCaig continued, "we look forward to
seeing Grand Union achieve solid growth and success and an even
stronger customer franchise."
Grand Union currently operates 231 retail food stores in Connecticut,
New Jersey, New Hampshire, New York, Pennsylvania and Vermont.
THE GRAND UNION HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in thousands of dollars)
52 Week Fiscal Year Ended 12 Week Quarter Ended
April 1, April 2, April 1, April 2,
1995 1994 1995 1994
Sales $2,391,696 $2,477,339 $ 524,060 $ 572,980
Gross profit 686,504 711,964 145,719 165,495
Operating and
administrative
expense (550,913) (531,839) (130,807) (123,024)
Earnings before LIFO
provision, depreciation
and amortization,
provision for store
closings, reorganization
items, charges relating
to pension settlement
and early retirement
programs, interest
expense, income taxes,
and cumulative effect of
accounting change
(EBITDA) 135,591 180,125 14,912 42,471
LIFO provision 1,110 (928) 1,860 (320)
Depreciation and
amortization (87,098) (78,577) (19,874) (19,208)
Provision for store
closings, net (12,900) -- (2,270) --
Reorganization items (10,770) -- (8,888) --
Charges relating to
pension settlement
and early retirement
programs (3,747) (4,468) (3,747) (4,468)
Earnings (loss) before
interest expense,
income taxes and
cumulative effect
of accounting change 22,186 96,152 (18,007) 18,475
Interest expense:
Debt:
Obligations requiring
current cash
interest (124,372) (128,661) (19,789) (30,445)
Obligations requiring
no current cash
interest (33,317) (35,354) (2,163) (8,603)
Capital lease
obligations (19,226) (14,951) (4,719) (3,996)
Amortization of
deferred financing
fees (5,101) (4,831) (1,187) (1,140)
Loss before income
taxes and cumulative
effect of accounting
change (159,830) (87,645) (45,865) (25,709)
Income tax provision -- -- -- --
Loss before cumulative
effect of accounting
change (159,830) (87,645) (45,865) (25,709)
Cumulative effect of
accounting change -- (30,308) -- --
Net loss (159,830) (117,953) (45,865) (25,709)
Accrued preferred
stock dividends
of Holding (19,480) (16,011) (1,307) (3,841)
Net loss applicable to
common stock of
Holdings $(179,310) $(133,964) $ (47,172) $(29,550)
CONTACT: Grand Union Holdings Corp. | Donald C. Vaillancourt,
201/890-6100