Bloomberg News

California’s Lockyer to Seek Bids for $5 Billion Bridge Loan

July 21, 2011

(Adds Lockyer spokesman in fourth paragraph.)

July 21 (Bloomberg) -- California will seek bids for a $5 billion bridge loan next week to have cash available ahead of any disruption to the credit markets if U.S. lawmakers fail to raise the federal debt ceiling, Treasurer Bill Lockyer said.

Proceeds would be used to help pay bills until the state can sell an estimated $5 billion of so-called revenue- anticipation notes, or RANs, which had been scheduled for late August, according to a statement issued by Lockyer’s office today. Without the short-term securities, the state may run out of cash as it did in 2009, when it issued $2.6 billion of IOUs.

President Barack Obama and Congress are negotiating to raise the U.S. debt ceiling and avert a default before an Aug. 2 deadline. Standard & Poor’s and Moody’s Investors Service have said they may lower the U.S. government’s AAA credit rating if the talks falter.

“The notes will be privately placed, rather than sold in the market,” Lockyer spokesman Tom Dresslar said in the statement. “If the president and Congress reach an agreement to raise the debt ceiling before we award the bids, we could pull the plug on the sale.”

The state has invited investment banks, commercial banks, credit unions and investment funds to bid for the loan, Dresslar said in an interview. Bids will be accepted and the deal will be awarded on July 26, according to Lockyer’s statement.

California used a $6.7 billion bridge loan from JPMorgan Chase & Co. and five other banks in October, when a record 100- day budget impasse prevented Lockyer from issuing RANs. The notes are commonly used for cash flow before the bulk of taxes is collected later in the year.

Paying Off Loan

“The state still will go to the market at some point to sell about $5 billion of regular RANs,” Dresslar said. “The proceeds of that sale would be used to pay off the bridge loan, if that transaction is completed.”

California paid 1.4 percent on the October loan, which was repaid when Lockyer sold $10 billion of RANs at the end of November. The sale included $2.25 billion of notes that came due in May with a yield of 1.5 percent and $7.75 billion that matured in June at 1.75 percent.

The May notes yielded 98 basis points, or 0.98 percentage point, more than top-rated one-year debt at the time and the June notes yielded 123 basis points more, Municipal Market Advisors data show. California sold $8.8 billion of such notes in September 2009 and $5 billion the year before.

--Editors: Pete Young, Ted Bunker

To contact the reporter on this story: Michael B. Marois in Sacramento at

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

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