Bloomberg News

California Taps Banks Including Goldman for $5.4 Billion Loan

July 27, 2011

July 27 (Bloomberg) -- Goldman Sachs Group Inc. and Wells Fargo & Co. led a syndicate of eight banks and investors who won the bidding to loan California $5.4 billion before any credit- market disruption should the U.S. default on its debt.

Citigroup Inc., Barclays Plc, JPMorgan Chase & Co., Bank of America Merrill Lynch, Morgan Stanley and US Bank also will participate, Treasurer Bill Lockyer said yesterday in a statement. The state will pay 0.237 percent, or about a third of the rate on comparable debt. The loan matures by Nov. 22.

Lockyer is rushing to borrow before an Aug. 2 deadline for President Barack Obama and Congress to reach a deal that would raise the U.S. debt ceiling and avert a default. Missing the deadline may cost the government its top-ranked credit rating, upend financial markets and send interest rates higher.

“California had to obtain this interim financing to protect the state from the immediate, drastic consequences of a failure by Washington to resolve the debt ceiling impasse,” Lockyer said in the statement.

California will use the proceeds to help pay bills until it can sell about $5 billion of short-term debt called revenue- anticipation notes, or RANs. The sale was scheduled for late next month.

Goldman Sachs and Wells Fargo each will loan the state about $1.47 billion, followed by $736.4 million from Citigroup and $490.9 each from Barclays and JPMorgan, while Merrill Lynch, Morgan Stanley and US Bank agreed to loan about $245.5 million apiece, Lockyer said.

Third Loan

The terms Lockyer received compare with a 0.9 percent rate on an index of tax-exempt notes maturing in three months, according to Bloomberg Fair Market Value.

The bridge loan is California’s third in as many years. The state borrowed $6.7 billion from JPMorgan Chase & Co. and five other banks in October, when a record 100-day budget impasse prevented Lockyer from selling short-term notes. The state paid 1.4 percent on the October loan, or $6.7 million of interest, until it was repaid when Lockyer sold $10 billion of sort-term debt in November.

In August 2009, he borrowed $1.5 billion from JPMorgan with a 3 percent interest rate after a similar budget stalemate forced the state to issue IOUs to pay some bills. Lockyer sold $8.8 billion of short-term notes a month later and used some of the proceeds to repay the debt.

--Editor: Ted Bunker, Mark Schoifet, Jerry Hart.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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