California Plans Sale of $2 Billion Bonds, $1 Billion in Short-Term Notes

California (STOCA1) plans to sell about $2 billion of general-obligation bonds on March 1, the largest offering in four months by the most indebted U.S. state, a spokesman for Treasurer Bill Lockyer said.

JPMorgan (JPM) Securities LLC, Barclays Capital Inc. and Wells Fargo & Co. will manage the bond sale, Lockyer’s office announced last week. Proceeds will be used to refund outstanding debt. The state on Feb. 22 will also sell about $1 billion in short-term revenue-anticipation notes to deal with cash-flow needs, according to Tom Dresslar, Lockyer’s spokesman.

The sales come amid the biggest rally for California debt in two years after Governor Jerry Brown and Lockyer curtailed borrowing to help shrink deficits totaling more than $35 billion since Brown took office in January 2011. The state borrowed $3.3 billion in 2011, the least in four years, last selling tax- exempt debt Oct. 17, when it borrowed $1.8 billion.

The tax-anticipation notes will help Lockyer and Controller John Chiang deal with a $3.3 billion cash shortfall they estimate through the middle of April. Tax revenue hasn’t met forecasts and spending has exceeded projected levels, Chiang said Jan. 31.

California’s debt rating of A- from Standard & Poor’s is the lowest of any state. Moody’s Investors Service rates the state A1, the second-lowest after Illinois.

Higher Yield

A California general-obligation bond sold in March 2010 and due in 2022 yielded about 75 basis points more than an index of AAA rated 10-year securities on Jan. 30, according to data compiled by Bloomberg. That’s down from 170 basis points after the sale and less than the 109-point two-year average. A basis point is 0.01 percentage point.

State and local debt of California returned 14.8 percent last year, according to a Bank Bank of America Merrill Lynch index. That’s more than the 11.2 percent for the full $3.7 trillion municipal market, the 9.8 percent for U.S. Treasuries and the 7.5 percent for investment-grade company debt.

It was the third straight year the state’s securities beat all munis since 2008, when they lost 7 percent. Through January, California issues returned 3.3 percent, more than the market, Treasuries and corporate debt, the Merrill indexes show.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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