ABSTRACT
On December 6, 1994, the financial world was rocked by news that Orange County, California, had declared bankruptcy. Its vast $20 billion investment pool, representing over 180 county and municipal agencies, had experienced $1.7 billion in unrealized losses due to the fund’s heavy reliance on investments that fell in value as interest rates rose in 1994. Nervous creditors who had made loans to the fund to finance its aggressive investment strategies liquidated $11 billion in collateral on the loans. Then, with its leverage hopelessly constricted, the county fund filed for protection under Chapter 9 of the U.S. Bankruptcy Code, much like the way private firms seek protection under Chapter 11 of the Code. It was the largest municipal bankruptcy in the history of the federal code.
