Bloomberg News

California Refunds Debt With Yields a Third Below 2009 Level

September 21, 2011

Sept. 21 (Bloomberg) -- California, its fiscal progress easing the premium demanded by investors, saved $152 million by refunding debt with the sale of $2.4 billion in general- obligation bonds at yields about a third less than two years ago.

The state’s first general obligations offered this year were priced yesterday to yield 3.17 percent on 10-year maturities, as much as 109 basis points above top-rated tax- exempt debt. That compares with a 160 basis-point premium on similar bonds sold in March 2009. A basis point is 0.01 percentage point.

“There is a perception that the state is getting its budgeting and deficit situation more in order,” Kelly Wine, executive vice president of RH Investment Corp., a broker-dealer in Encino, California, that helped sell the bonds, said yesterday.

The budget that Governor Jerry Brown and Democrats passed in June, which helped reduce long-term structural imbalances, allowed Treasurer Bill Lockyer to lower yields because perceived risk has declined, said his spokesman, Tom Dresslar. Individual investors bought about 28 percent of the issue, or $655 million, down from 80 percent in November, the most recent previous sale. About half of the total was offered to such buyers, Dresslar said.

“The treasurer will maintain his focus on maximizing retail purchase of California bonds,” Dresslar said yesterday. “But if the days of investors getting a sweet fiscal mismanagement premium are over, we may not see again some of the higher retail percentages of recent years.”

Offering Reduced

The offering was reduced by 6 percent, to $2.39 billion from the original plan to sell $2.54 billion in securities.

Lockyer will use $1.1 billion of the debt to refinance outstanding general-obligation bonds and another $1.26 billion to pay down outstanding commercial paper. That will help the state cut its debt service costs over the life of those bonds by $152 million, Dresslar said.

California sold bonds with yields ranging from as little as 0.72 percent for securities maturing in 2013 and as much as 4.8 percent for debt maturing in 2041, 114 basis points above a 30- year index of top-rated tax-exempt bonds.

The 10-year index of top-rated municipals fell to 2.08 percent today, up from 2.05 percent on Sept. 12, the lowest level since January 2009, when Bloomberg began collecting data for the securities. Yields on top-rated 30-year tax-exempts fell to 3.63 percent after slipping to 3.56 percent on Sept. 12, also the lowest since Bloomberg records began.

The state’s debt, including price changes and interest income, returned 9.3 percent through Sept. 19, outperforming the overall tax-exempt market by 122 basis points, according to S&P Municipal Bond Indexes.

--Editors: Pete Young, Ted Bunker

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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