California Concludes $10 Billion Note Sale Yielding 0.43%
California completed its largest offering of short-term notes in two years with institutional investors taking the largest share after a decline in individual buyers.
Final pricing on the $10 billion sale included 0.33 percent on a note maturing in May and 0.43 percent for a June maturity, according to the state treasurer’s office. Earlier this week, the state offered 0.3 percent to 0.4 percent for a May note and 0.4 percent to 0.55 percent for one coming due in June.
Individual investors took $3.24 billion, or 32 percent of the sale, down from 66 percent of a $5.4 billion offering with a top yield of 0.4 percent in September.
“This is an outstanding result,” Treasurer Bill Lockyer said in a statement. “$10 billion is always a heavy lift, regardless of market conditions, and we got it done at an excellent price for taxpayers.”
“Their borrowing costs are very close to what they paid on last year’s” issue, he said.
The final pricing is 17 basis points to 27 basis points higher than today’s 0.16 percent yield on benchmark AAA one-year tax-exempt debt, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
In the September sale, debt that matured in May was priced at 0.38 percent, while bonds due in June were offered at 0.4 percent. Those yields at the time were about 17 basis points higher than AAA rated tax-exempt debt maturing in a year, according to data compiled by Bloomberg.
The most populous U.S. state sold revenue-anticipation notes to raise cash until the bulk of tax receipts arrive later in the year that ends June 30. Last year’s sale probably went more briskly because it was smaller, said Michael E. Johnson, a managing director at Gurtin Fixed Income Management LLC, which manages about $6.1 billion, including $4 billion in municipals.
“The pricing is fair, but we think they may have to bump it a little bit to get through the balances,” Johnson said in a telephone interview from Solana Beach, California, before the sale concluded.
Both Standard & Poor’s and Moody’s Investors Service gave the notes top ratings.
Borrowing costs for the most indebted U.S. state have declined as Governor Jerry Brown, a Democrat, has taken steps to curb debt issuance and reduce the state’s reliance on fiscal maneuvers such as internal loans and delaying payments owed to schools and local governments.
The note sale, combined with borrowing planned through October, means California will issue $17.48 billion in debt this year, up from $11.18 billion in 2011, according to calculations by Tom Dresslar, Lockyer’s spokesman. In 2010, when the federally subsidized Build America Bonds program ended, California sold $21.12 billion in securities. The numbers include general-obligation bonds, revenue-anticipation notes and lease-revenue bonds issued by the state Public Works Board.
The state plans to sell $1.6 billion in general-obligation bonds on Sept. 25, including $1.3 billion for infrastructure projects and $300 million to refinance existing bonds, according to the treasurer’s office.
The state also scheduled a $500 million sale Oct. 23 to refinance general-obligation bonds.
The Public Works Board set a $250 million sale of lease- revenue bonds for Sept. 13 to benefit the University of California and California State University systems, and $548 million on Oct. 17 for various projects, according to Dresslar.
Following the September sale, California had to borrow $1 billion more in February after tax collections fell short and spending topped expectations.
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