Bloomberg News

California Raises $2.7 Billion as Rate Boost Lifts Demand

April 12, 2013

California seized on demand for tax-exempt securities and increased a general-obligation bond offering to $2.7 billion yesterday from $2 billion 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 April 10, 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 yesterday in a statement. “We couldn’t be more pleased with the market’s response.”

Still, the state raised its offer on some debt, pricing 10- year bonds to yield 2.37 percent yesterday, up from 2.33 percent the day before, data compiled by Bloomberg show. The final yield is about 0.58 percentage point higher than the rate on benchmark 10-year munis, compared with a spread of 0.48 percentage point on a borrowing last month, the data show.

The sale yesterday follows three California offerings in four weeks -- a general-obligation issue, a tobacco-revenue bond sale backed by the state’s pledge to repay, and securities tied to state lease payments.

Buyer ‘Fatigue’

“You’re probably getting a little bit of fatigue” among investors who buy the state’s debt, 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.”

California’s second general-obligation debt sale of the year came 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 came in $324.1 million, or about 15 percent, higher than estimated, helping to raise state revenue by $395.5 million, or 7.2 percent, above expectations, Chiang’s office reported.

California’s 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.

Key Weeks

“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 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 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 residents 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 increases to fund education, said in January that California would have an $851 million surplus at the end of June, its first in more than a decade.

To contact the reporters on this story: James Nash in Los Angeles at jnash24@bloomberg.net; Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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