California Increases Bond Sale to $2.7 Billion on DemandJames Nash, Michelle Kaske and Michael B. Marois
California increased its general-obligation bond offering by more than a third, to $2.7 billion from $2 billion, as demand for the securities surged after yields on some maturities were raised.
The most-indebted state sold $1.25 billion for capital projects and about $1.5 billion to refinance existing debt, up from $802 million offered yesterday, according to Treasurer Bill Lockyer’s office. Individual buyers ordered 72 percent of the bonds available to them, said Tom Dresslar, a spokesman.
“A $668 million size increase, orders for almost 75 percent of the bonds offered to retail investors and, best of all, about $350 million of savings for taxpayers -- that’s an outstanding result,” Lockyer said in a statement. “We couldn’t be more pleased with the market’s response.”
Still, the state had to raise yields on some debt. It priced 10 year bonds to yield 2.37 percent, up from 2.33 percent yesterday, data compiled by Bloomberg show. The final yield is about 0.58 percentage point higher than the interest rate on benchmark 10-year munis, compared with a spread of 0.48 percentage point on a borrowing last month, the data show.
“You’re probably getting a little bit of fatigue” among investors who buy debt from the state, said Craig Brothers, who helps manage $3 billion of munis at Bel Air Investment Advisors LLC in Los Angeles. “Overall, they have a pretty successful deal.”
This issue follows three California sales in four weeks -- a general-obligation offer, a tobacco-revenue bond sale backed by the state’s pledge to repay, and an issue of securities tied to state lease payments.
California’s second general-obligation debt sale of the year comes as personal-income tax receipts, the state’s largest revenue source, have exceeded both projections and 2012 levels ahead of the April 15 filing deadline, according to figures compiled by Controller John Chiang. Income-tax receipts in March were $324.1 million or about 15 percent higher than estimated, helping to lift the state’s total revenue by $395.5 million, or 7.2 percent more than expected, Chiang’s office reported.
California’s total general-fund revenue from July 1 through the end of March was $4.7 billion or 7.8 percent higher than projections in the budget set by 75-year-old Democratic Governor Jerry Brown, according to calculations by Chiang’s office.
“While the first nine months of revenue far exceeded expectation, income-tax deposits over the next two weeks will show whether that uptick is solid or fleeting,” Chiang, a 50-year-old Democrat, said yesterday in a statement. “The governor and lawmakers have exercised discipline by waiting to make spending decisions until we can explain whether this surge reflects economic growth, or simply means that taxpayers paid their taxes earlier than usual.”
California debt is becoming safer as the state economy rebounds and Brown reduces long-term obligations, said John Ceffalio, municipal credit analyst for New York-based AllianceBernstein Holding LP, manager of $443 billion in assets.
“There’s always a chance of an April surprise on one side or the other,” Ceffalio said yesterday of California revenue. “Long-term, there’s always a chance of volatility owing to the progressive nature of California’s income tax.”
In the March sale, Lockyer had to raise yields on some bonds with longer maturities amid a slump in state and local debt. Yields on 20-year securities rose to 3.57 percent from 3.39 percent as a 10-day rally in the Dow Jones Industrial Average may have presented a more attractive alternative.
California voters in November boosted income-tax rates on individuals earning $250,000 or more, with levies on incomes of $1 million or more increasing 3 percentage points, to 13.3 percent.
Brown, who backed the tax increases to fund education, said in January that California would have an $851 million budget surplus at the end of June, its first in more than a decade.