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Frequent borrower California is back with another bond sale

November 2, 2009 |  6:31 pm

California, which has borrowed $16.4 billion via short- and long-term bonds since Sept. 23, this week comes back to the well once more despite the jump in market interest rates over the last month.

The state plans to borrow $2.25 billion by selling long-term general obligation bonds in the next two days, mostly aiming at institutional investors. It’s expected to be the last general-obligation bond sale this year.

The debt will be issued in three parts:

--- On Tuesday, the state’s brokerage underwriters will take orders from individuals for $100 million of 25-year bonds. The state has set a preliminary tax-free annualized yield of 5.5% on the securities.

Lockyer --- On Wednesday, institutional investors will be offered what’s left of the 25-year bonds plus a total of $1.4 billion of tax-free securities maturing in either 26 or 30 years. Longer-term municipal bonds typically are purchased by big investors; individuals usually prefer to stick with shorter-term securities.

--- Unexpectedly, Treasurer Bill Lockyer also scheduled for Tuesday a sale of $750 million of taxable bonds under the so-called Build America Bonds program. Lockyer spokesman Tom Dresslar said the 30-year offering was spurred by an "inquiry" from an unnamed investor. Other institutional investors will be invited to join in the bidding for the bonds, he said.

Build America Bonds are subsidized by the federal government, which commits to making direct payments to state and local issuers to offset 35% of their interest cost on the bonds.

California sold $1.75 billion of 30-year Build America Bonds at a taxable yield of 7.23% on Oct. 8. The investor behind the "inquiry" about another such deal may be figuring to get at least that level of yield.

This week’s debt offerings will help Lockyer whittle down the backlog of bonds California voters have approved for infrastructure projects such as schools and water facilities in recent years. The backlog, now about $60 billion, also was reduced with the sale of $4.14 billion of general obligation bonds on Oct. 8.

But the lion’s share of the state’s recent $16.4-billion in borrowing isn’t funding infrastructure projects. The $8.8 billion of short-term debt issued on Sept. 23, for example, provided cash for state operations until tax revenue rolls in later in this fiscal year.

A sale of $3.5 billion of bonds last week refinanced a portion of the state’s so-called economic recovery bonds, first issued in 2004 to plug that year’s accumulated budget deficit.

-- Tom Petruno

Photo: California Treasurer Bill Lockyer