Failed securities' fire sale returns $62 million to King County

A fire sale of two mortgage-backed securities that defaulted has returned $62.2 million of the $100 million that a King County-managed investment fund put into them.

That's a little more than the King County Investment Pool expected to get back, but county Finance Director Ken Guy said Wednesday deteriorating market conditions could bring a lower return on two other troubled securities.

The county, which manages the $4 billion investment pool on behalf of itself and nearly 100 other jurisdictions including school, utility, fire and library districts, estimated at the end of last year that it would recover 60 percent of the money it put into four failed securities that bundled home mortgages and other debt.

Auctions of the Cheney and Rhinebridge "structured investment vehicles" in July returned 64 and 61 percent, respectively, of the amount originally owed to the investment pool, Guy told the Metropolitan King County Council's operating-budget committee Wednesday.

However, based on eroding market conditions, Guy said later, it now appears auctions of the Mainsail II and Victoria securities may bring in only 50 to 55 percent of the investment pool's $107 million stake in them.

Guy said the county chose to cash out its Cheney and Rhinebridge investments at deep discounts as a safer option than exchanging the assets for long-term zero-coupon bonds through an investment bank.

The investment pool — which last year put one-fourth of its holdings in mortgage-backed securities or other forms of "commercial paper" — received full payment on all its other commercial-paper holdings when they matured. The county halted all purchases of commercial paper after Mainsail defaulted last year.

The investment pool also has lowered the fees it charges jurisdictions that put their money in the pool and is working on a plan to give those jurisdictions a voice on investment strategy.

King County last December projected investment-pool losses of $83 million with county agencies losing $30 million, $5 million of it in the cash-strapped general fund.

Keith Ervin: 206-464-2105 or kervin@seattletimes.com