California Prepares $1.6 Billion General-Obligation Sale

Jerry Brown
The sale is California’s first taxpayer-backed offering since Governor Jerry Brown in January proposed a record $106.8 billion general-fund budget that projects the state will enjoy its biggest surplus in more than a decade. Photographer: Ken James/Bloomberg

California plans to sell $1.6 billion of general-obligation bonds next week, the largest sale since October for the most indebted U.S. state.

California Treasurer Bill Lockyer will use $900 million of the debt to finance public-works projects and $700 million to refinance bonds. Institutional investors such as mutual funds will be offered the bonds March 13 after individual investors place bids for two days, according to a Lockyer spokesman, Tom Dresslar.

The sale is California’s first taxpayer-backed offering since Governor Jerry Brown in January proposed a record $106.8 billion general-fund budget that projects the state will enjoy its biggest surplus in more than a decade. Brown’s plan to use the surplus to pay down budget debt and stockpile reserves led Standard & Poor’s in January to raise its outlook on $75 billion of California bonds to positive.

California also plans to sell $800 million of lease-revenue bonds for prison construction later this month. Lockyer will also sell $820 million of general obligations in April, $170 million of which will be offered through competitive bid, according to his website.

Investors demand about 0.48 percentage point of extra yield to buy 30-year California debt instead of benchmark munis, down from an average of about 0.53 percentage point last year, data compiled by Bloomberg show

S&P, which raised California’s grade to A in January, said the state’s credit rating could rise one step, to A+, within two years if lawmakers pass a spending plan with Brown’s proposals. The January upgrade was the state’s first by S&P since 2006. California still has the second-lowest S&P rating among U.S. states, ahead of only Illinois.

Moody’s Investors Service rates the bonds A1, the company’s fifth-highest.

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