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California Sells 18% of $2.5 Billion of Bonds to Individuals

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Sept. 16 (Bloomberg) -- California took orders from individual investors for 18 percent of its $2.5 billion debt issue on the first day of sales, according to Tom Dresslar, a spokesman for Treasurer Bill Lockyer.

The state’s first general-obligation issue in 10 months offered a yield of 4.8 percent for $350 million of bonds due September 2041, Dresslar said in an e-mailed statement. That’s 1.16 percentage points above yields on 30-year AAA rated tax-exempt securities, according to data compiled by Bloomberg. Debt maturing in 2021 was sold at 3.17 percent, or 1.08 points above a similar 10-year index.

California will need to raise rates on most maturities by about 20 basis points to attract individual buyers outside of the state, Terry O’Grady, senior vice present of municipal trading at FMS Bonds Inc. in North Miami Beach, Florida, said in a telephone interview before the day’s results were released.

“About 20 basis points higher across the board would make them attractive nationally,” O’Grady said. The company has distributed “significant” amounts of California bonds to individual investors around the nation in the past, when higher yields were offered.

The sale follows California’s $5.4 billion short-term revenue-anticipation note issue Sept. 14 at yields of as low as 0.38 percent to bolster cash flow.

Voluntary Suspension

That was as much as 137 basis points less than when it sold $10 billion of such notes in November. Governor Jerry Brown and Lockyer voluntarily halted debt sales earlier this year to curb costs.

Proceeds from the latest sale will be used to pay off some short-term loans and refund other debts. The refinancing portion of today’s issue was priced to provide yields as low as 0.67 percent. Bank of America Merrill Lynch and Stone & Youngberg are managing the sale, continuing Sept. 20.

California has the lowest long-term debt rating of any state from Standard & Poor’s at A-, its fourth lowest for investment-quality securities. Moody’s Investors Service rates it A1, fifth-highest.

To contact the reporters on this story: James Nash in Sacramento at; Michelle Kaske in New York at

To contact the editor responsible for this story: Mark Tannenbaum at

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