County takes 2nd hit to investments

Another bankruptcy costs pool

KINGMAN - The economy has delivered a second hit to the county's local investment pool. On Nov. 30, County Treasurer Melissa Havatone notified local school, fire and other improvement districts invested in the pool that CIT Group, Inc. had filed for Chapter 11 bankruptcy on Nov. 1. According to the Treasurer's Office, approximately $4.5 million of the funds in the pool were invested in CIT Group.

Chapter 11 bankruptcy gives a company temporary relief from creditors while it reorganizes.

According to Bloomberg News, a bankruptcy judge approved CIT Group's reorganization plan on Dec. 8. When it filed for bankruptcy in November, it had $71 billion in assets and $64.9 million in debts. The company also received a $2.3 billion bailout from the federal government. The company is expected to exit bankruptcy by Dec. 31. Bloomberg is estimating that investors may get approximately 70 cents plus stock in the company for every dollar invested.

This is not the first time the county investment pool has taken a hit because of the market. In 2007, the pool took a $5 million hit when Lehman Brothers filed for bankruptcy.

The Treasurer's Office deducted that amount from the investment pool and "apportioned it to the districts based on their investments at the time of the bankruptcy," Havatone said in a news release.

The funds the county received back after Lehman Brothers finished its bankruptcy hearings was proportioned back to the districts.

Kingman Unified School District took a particularly hard hit at that time because it had approximately $1 million invested in Lehman Brothers bonds.

Havatone's office plans to do the same with the CIT bonds, splitting the $4.5 million according to how many CIT bonds each investor had.

The damage could have been worse, she said. Her office sold as many of the CIT bonds as it could in June and July prior to the bankruptcy filing.

"We were able to reduce the original CIT position from $7,081,000 down to $4,53,855.18. We have also been able to reduce the dollar amount of corporate bonds held by the county from over $50 million to just under $15 million," she wrote in a letter to the districts invested in the investment pool.

The Treasurer's Office is continuing to reduce the number of corporate bonds the investment pool has, instead purchasing U.S. Treasury and Agency bonds, which are less risky, she said.

"Corporate bonds were paying off prior to the economic downturn," Havatone said.

"During the time the county held those bonds, the districts made substantial interest off of them.

"And although there has been a loss, they either gained equal or more than what they lost during that time."

Those that participated in the investment pool at that time earned a combined total of $14.5 million, she said.

Former Deputy Treasurer Janet Barker and former Treasurer Lee Fabrizio created the local investment pool as a way to generate income on investments for some of the improvement and school districts in 2006 and 2007.

In Oct. 2008, the Board of Supervisors created an Investment Oversight Committee to keep an eye on the investment pool.

The committee meets quarterly.