February 21, 2013 / 8:51 PM / 5 years ago

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

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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