California Sells $2.3 Billion in Notes to Raise Cash

California Offers $10 Billion in Notes at Yields Up to 0.55%
The most populous U.S. state has seen borrowing costs decline as Governor Jerry Brown curbed municipal debt and passed measures to ease deficits. Photographer: Justin Sullivan/Getty Images

California sold almost a quarter of $10 billion in notes to individual investors with yields of as much as 0.55 percent in the state’s largest short-term borrowing in two years, according to Treasurer Bill Lockyer’s office.

While individuals scooped up 23 percent of the issue, that’s less than half the 57 percent sold on the first day of the state’s last such sale. That $5.4 billion offering in September carried yields of 0.38 percent to 0.4 percent.

“We’re looking forward to getting back in the ring tomorrow,” Tom Dresslar, a Lockyer spokesman, said after the sale results were known yesterday. He said he couldn’t account for the difference in first-day orders compared with the September sale.

The revenue-anticipation notes sold yesterday offer yields ranging from 0.3 percent to 0.4 percent for those coming due in May and 0.4 percent to 0.55 percent for June maturities, according to a pricing memo e-mailed by Dresslar. The range is almost 12 basis points to about 37 basis points higher than yesterday’s 0.18 percent yield on benchmark AAA one-year tax-exempt debt, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

Borrowing costs for the most-populous U.S. state have declined as Governor Jerry Brown, a Democrat, has taken measures to curb borrowing and reduce the state’s reliance on fiscal maneuvers such as internal loans and delaying payments owed to schools and local governments. Both Standard & Poor’s and Moody’s Investors Service gave the notes top ratings.

Raising Cash

State and local governments typically sell short-term debt to raise cash until the bulk of tax receipts arrive later in the fiscal year, which in California ends June 30. The revenue-anticipation notes must repaid in the fiscal year they are sold.

JPMorgan Chase & Co. and Wells Fargo & Co. are joint senior managers and Los Angeles-based bond firm De La Rosa & Co. is co-managing the sale. The state will take orders from individual investors again today, and complete the offering tomorrow.

Following the September sale, California, the most indebted state, had to borrow $1 billion more in February after tax collections fell short and spending topped expectations.

In the September sale, two-thirds of the debt was sold to individual investors. A portion that matured in May was priced at 0.38 percent, while the bulk of the bonds, which came due in June, were offered at 0.4 percent.

Those yields at the time were about 17 basis points higher than yields on AAA rated tax-exempt debt maturing in a year, according to data compiled by Bloomberg.

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