WASHINGTON Aug 15 California sold $5.5 billion
worth of revenue anticipation notes (RAN) on Thursday at the
lowest yields for the short-term debt that the state has seen in
more than 40 years.
The bulk of the deal, $4 billion of notes maturing in June
2014, was priced to yield 0.23 percent. The remaining $1.5
billion of notes, maturing one month earlier in May 2014, were
priced to yield 0.21 percent. Both maturities had coupons of 2
Those were the lowest yields in a RAN sale since at least
1971, the earliest year for which data are available, according
to the state treasurer's office. And they stand in marked
contrast to last August's sale of $10 billion of notes, which
cover short-term cash needs. In that sale, the May 2013 maturity
had a yield of 0.33 percent and the June 2013 maturity a yield
of 0.43 percent.
"We received excellent demand for the RANs and an
outstanding price for taxpayers," said California Treasurer Bill
Lockyer in a statement. "The results add to the accumulating
evidence of growing investor confidence in California's fiscal
"The size of the RAN sale itself illustrates one factor
driving the state's stronger market standing," he added. "The
$5.5 billion is about half of last year's $10 billion, and that
reflects the state's much-improved cash position."
J.P. Morgan Securities was the lead underwriter on the deal.
"A strong demand on short-term assets and a better credit
outlook for California were reflected in the pricing," said
Domenic Vonella, an analyst at Municipal Market Data, a unit of
Vonella said that yields on Thursday for similarly rated
notes on MMD's "MIG 1" scale were only slightly lower than the
California debt - at 0.18 percent on the June 2014 maturity and
0.17 percent on the May 2014 maturity.
Moody's Investors Service had assigned the notes a 'MIG 1'
rating, noting California's cash is expected to be "sufficient
to repay the notes with healthy additional cushion." Standard &
Poor's Ratings Services had assigned them its 'SP-1+', noting
the state has a "strong capacity" for repaying the debt by the
end of June 2014 and "the state's liquidity has recovered enough
to accommodate a relatively severe degree of stress."
Demand was strong enough to slightly push down yields in
repricing, from 0.22 percent for the May maturity and from 0.24
percent for the June maturity in preliminary pricing.
During Wednesday's retail order period individual investors
snapped up $1.65 billion of the debt. The yield range quoted to
retail buyers for the May maturity was 0.18 percent to 0.23
percent and the range for the June maturity was 0.20 percent to
0.27 percent, according to the state treasurer's office.
California's fortunes have experienced a remarkable
turnaround over the last year. Voters in November approved a
ballot measure lifting the state's sales tax and increasing
personal income tax rates on the wealthy.
The new revenue, along with spending restraint and a
strengthening economy, helped the state end last fiscal year
with $2 billion more in revenue than Governor Jerry Brown's
revised budget plan projected. In the budget for the current
fiscal year, which began on July 1, general fund spending is up
slightly to $96.3 billion from $95.7 billion and the state has
an emergency reserve of $1.1 billion.
In the open market on Thursday, Treasury notes due in May
2014 were yielding 0.13 to 0.15 percent, and those due in June
2014 yielded 0.15 percent. Treasuries are taxable, whereas the
interest paid by the California notes is not taxed.