California forced to boost yield on bond sale to lure buyers
California has stumbled badly in its latest foray into the municipal bond market -- a sign that investors are overloaded with the state’s debt.
Borrowing $1.9 billion Tuesday via bonds that mature in June 2013, the state was forced to pay a 4% annualized tax-free yield to lure investors to the deal.
Just last Friday the brokerages underwriting the deal, led by Goldman Sachs, had estimated that the bonds could be sold at a yield of 3%.
Individual investors put in orders for $621 million of the securities, or about 33% of the total. But that wasn’t enough to give the state much leverage with the institutional investors whose demands determined the final yield on the debt.
The bonds were issued by the California Statewide Communities Development Authority, but it’s the state itself that’s on the hook. The proceeds will repay cities and counties for the $2 billion in property tax revenue that the state is borrowing from them -- some would say, stealing from them -- under terms of the budget deal the Legislature and Gov. Arnold Schwarzenegger reached in July.
California has borrowed heavily in recent months for budget-related reasons and to fund long-term infrastructure projects, and Treasurer Bill Lockyer has been selling into a market that has demanded ever-higher yields on Golden State debt.
That’s good for investors, but taxpayers will pay the price.
-- Tom Petruno