UPDATE 2-California plans $2.738 bln GO bond sale next month

Thu Feb 21, 2013 5:14pm EST

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SAN FRANCISCO Feb 21 (Reuters) - California plans to sell $2.738 billion of tax-exempt and taxable general obligation bonds next month, starting with a two-day retail period on March 12-13, the state treasurer's office said in a statement on Thursday.

The sale will be California's first test of demand for its general obligation debt since Standard & Poor's raised its credit rating last month on the most populous U.S. state's GO debt by one notch to A from A-minus, a move that left Illinois as S&P's lowest rated state at A-minus.

The upgrade came a few weeks after California Governor Jerry Brown unveiled a plan to swing his state's deficit-prone budget to surpluses with the help of spending restraint and revenue from tax increases approved by voters in November.

Ken Naehu, managing director and head of fixed income at Bel Air Investment Advisors in Los Angeles, said California's sale should be well received.

"Demand should be pretty high," Naehu said, noting S&P's upgrade, California's constitutional guarantee of debt payments and spreads for California GOs.

S&P's upgrade has helped narrow spreads on the debt. The spread between the state's 10-year GO debt and Municipal Market Data's triple-A benchmark stood at 33 basis points on Thursday.

The yield on top-rated 10-year muni bonds was flat at 1.90 percent on Thursday while the 30-year yield declined 2 basis points to 2.94 percent, according to MMD.

California's initial plan calls for selling $2.2 billion in tax-exempt bonds, which will include new money and refunding debt. Amounts, however, have not yet been determined.

California also aims to sell $310 million in regular taxable bonds, which includes $68 million of new-money bonds and $242 million of refunding bonds.

In addition, the state plans to remarket $228 million of its fixed-rate taxable Build American Bonds it has bought back.

The sale's taxable bonds will price on March 13 and its tax-exempt bonds will price on March 14 following the two-day retail period, State Treasurer Bill Lockyer's office said, adding that JP Morgan Securities and Goldman Sachs & Co are the deal's joint lead underwriters.

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Comments (2)
ericsaxon wrote:
Well, I guess I should move. I sure as hell am not paying of another bunch of bonds that the state of CA decides to saddle the next group of suckers living here, with.

Feb 21, 2013 5:08pm EST  --  Report as abuse
Jaws63 wrote:
I hope anyone considering these bonds realize the dire straits California is in. Its unemployment is listed at 8-9% when it is on average more like 11-12% in the San Francisco/Silicon Valley area. This does not consider the bleak forecast for anyone 40 years or older = another 12% disenfranchised and consider in the 6-8% homeless increase whom aren’t even counted, this is a pretty bleak picture of employment in California, circa 2013. Rents in the Bay Area = $1,700+ for a 600 sq.ft. apartment when the average job doesn’t pay more than $8.50 an hour. The utility company, P.G.&E. has a monopoly on your gas & electric. The Bay Area Air Quality Board regulates when you can burn wood in your fireplace and will fine you up to $500 for disobeying their “Spare the Air” days. This guarantees P.G.&E. your service. The garbage is collected by the San Mateo County owned SMRecology Department with 3 billing increases in collections over the past 2 years. Proposition A was just passed to re-fill the ‘Calpers’ coffer’s due to irresponsible actions on behalf of the State of California Legislators. What kind of return can anyone expect when the state is run by a Union representing Governor, a super-majority Legislature, and a 50.1% requirement to approve any bill that crosses their tables. High tech folks are moving out to save money. I don’t see these bonds as being anything more than a magic act – your money disappearing when the state files for bankruptcy in 2020.

Feb 21, 2013 6:59pm EST  --  Report as abuse
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