California Boosts Issue to $1.75 Billion at Record Yield
California sold $1.75 billion in tax-exempt debt at an all-time low interest rate of 3.72 percent for 30-year bonds, after boosting the size of the offering due to demand, the treasurer’s office said.
The state completed its sale one day early after receiving orders for 58 percent of the bonds from individual investors, Tom Dresslar, a spokesman for Treasurer Bill Lockyer, said yesterday in a statement.
California offered $1 billion of general obligations for public-works projects and increased debt refinancing to $750 million from $550 million, Dresslar said, even as it reduced the yield on 10-year securities to a preliminary 2.45 percent from 2.51 percent on Sept. 22.
“Our bonds’ market performance continues to rebut those who can’t seem to break the habit of trying to paint the darkest picture of California’s financial condition,” Lockyer said in a statement. “This result shows investors know better, and that they recognize we have greatly improved our fiscal management.”
By refinancing $750 million in debt, California saved about $157 million in interest payments, or $118 million in net present value, Dresslar said.
The yields were lower across the board than California’s prior general-obligation sale of $1.35 billion in April, Dresslar said.
The bonds offer 0.68 percentage point more yield than top- rated munis maturing in 10 years, according to data compiled by Bloomberg. That’s down from 0.84 percentage point on bonds with similar maturities sold in April. Thirty-year bonds were offered at 0.82 percentage point above AAAs.
“They got a really good amount of retail interest on Friday so they pre-sold a lot of the deal,” Daniel Solender, who helps manage about $17 billion of municipal bonds at Lord Abbett & Co. in Jersey City, New Jersey, said before the sale concluded. “There’s just a real demand for anything with a little incremental yield right now, and particularly in a liquid credit like California.”
With another $500 million sale slated for market in October, Lockyer plans to offer about $5.5 billion this year, about a quarter of the state’s sales in 2009.
California’s economy is bigger than India’s, ranking ninth in the world as measured by gross domestic product, according to the state Finance Department. Its bonds have returned 7.1 percent in 2012, beating the 6.1 percent gain for the broader $3.7 trillion muni market, according to Standard & Poor’s data.
S&P rates California A-, six levels below AAA and the worst mark it gives any U.S. state.
Benchmark tax-free debt due in 10 years yields 1.77 percent today, according to a Bloomberg Valuation index. Thirty-year debt yields 2.9 percent.
“It’s been several months since the last time they issued, which definitely benefits” California, Solender said.
-- Michelle Kaske in New York contributed to this report.
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