California gets $5.4 billion bank loan to bypass U.S. debt drama
California borrowed $5.4 billion from major banks Tuesday, boosting its cash reserves ahead of possible market disruptions tied to Washington’s debt drama.
The state got the loan at an annualized interest rate of 0.237%, Treasurer Bill Lockyer said. That is far below the 1.4% rate Lockyer had to pay for a bank loan last October and reflects that short-term interest rates in general have fallen sharply since then.
Lockyer had planned to sell at least $5 billion in so-called revenue anticipation notes to investors in August. The state typically sells such short-term notes at this time of year to bridge the gap between its cash needs and the arrival of tax revenue later in the fiscal year.
But last week, Lockyer said he decided to raise cash sooner by borrowing from banks to guard against “potential financial fallout from a debt ceiling impasse.”
Democrats and Republicans in Washington haven’t agreed on a plan to raise the $14.3-trillion federal debt ceiling ahead of the Aug. 2 deadline set by the Treasury. Without a higher ceiling by next week’s deadline, the U.S. Treasury says it risks defaulting on debt payments or other obligations.
That could throw financial markets into a panic -- although so far markets have been relatively calm.
Lockyer still plans to sell revenue anticipation notes to investors later this year to pay off the bank loan. The loan matures Nov. 22 but can be repaid before then.
-- Tom Petruno
Photo: California Treasurer Bill Lockyer. Credit: Armando Arorizo / Bloomberg News