Orange County, California’s rating elevated to AAA by S&P

S&P has raised Orange County, California’s issuer credit rating to AAA from AA-plus.

The county, best-known as home to Disneyland, paid off the remaining debt related to its 1994 bankruptcy in 2018 and long ago shrugged off the reputational stain.

It also holds a AAA rating from Fitch Ratings. Both S&P and Fitch have assigned stable outlooks.

The upgrade reflects the county’s “very strong management,” which led to strong budgetary performance over the past two years and resulted in a substantial increase in general fund reserves, said S&P Global Ratings credit analyst Li Yang. The strength of the local economy, growing tax base and rising property tax revenue were also factors, he said.

S&P also raised the long-term rating to AA-plus from AA on the county’s outstanding appropriation obligations, including those issued by the South Orange County Public Financing Authority.

The issuer credit rating is based on S&P’s view of the county’s general creditworthiness and its capacity and willingness to meet its financial obligations as they come due without regard to the terms of a specific debt instrument. The appropriation debt, rated a notch lower, is secured by, or represents an interest, in lease payments and base rental payments made by the county for the use and occupancy of leased premises.

County Executive Officer Frank Kim announced his retirement in November; and the board of supervisors agreed on June 9 to appoint Michelle Aguirre as acting CEO to replace him.

“Over the past nine years the county team has worked diligently on behalf of the citizens of Orange County to build a firm foundation for the future through policy improvements and intense strategic planning,” Aguirre said.

The AAA rating is a credit “to our commitment to the long-term strategic financial planning that is the foundation of developing our budget each year,” she said.

Each year since 2005, the county has developed and published a strategic financial plan to help safeguard its ability to respond to economic changes and unanticipated events and to ensure its resources and programs are aligned with countywide strategic priorities and values, according to a release from the county supervisors.

Donald Wagner, chairman of the board of supervisors, cited the county’s responsible allocation of resources for the upgrade.

“The AAA rating from S&P is a testament to the hard work of our employees and the sound judgment in financial decisions made by Orange County,” said Vice Chairman Doug Chaffee, Fourth District Supervisor.

Though many once looked to the Orange County bankruptcy for wisdom on how to weather a bankruptcy, it was an anomaly.

The affluent area was impacted by risky investment decisions, in contrast to California’s other three high-profile Chapter 9 cases in the last decade, involving cities that had cash-flow problems or were weighed down by employee pensions and salaries.

The county entered Chapter 9 bankruptcy December 1994 after its investment pool reported losses of $1.64 billion from highly leveraged positions that unraveled when interest rates rose.

Robert Citron, the county’s treasurer at the time, resigned in disgrace and faced criminal prosecution.