SAN FRANCISCO - After pricing $5 billion of revenue anticipation notes last week, California is planning to use credit enhancement to sell a further $2 billion of Rans the week of Nov. 17.
"We're still negotiating particulars on the additional security," said Tom Dresslar, spokesman for the state treasurer's office.
Last week's note sale - launched amid concerns about whether the deal could sell at all in a market lurching from crisis to crisis - was upsized to $5 billion from $4 billion after the state drew retail buyers by dangling the lure of yield, pricing the notes to yield 3.75% for the series maturing May 20, and 4.25% for the series maturing June 22. That unenhanced issue attracted almost $4 billion in retail orders.
Concerns about the state's ability to sell the Ran issue prompted Standard & Poor's to put California's A-plus bond rating on negative CreditWatch Oct. 10, an action the agency reversed Tuesday, citing the successful sale.
California officials planned from the start to issue $7 billion of Rans for the current fiscal year, but held some of the issuance back because of concerns about the state of the market.
While a retail order period is planned, the state expects enhancement will make the notes more attractive to institutions, according to Dresslar.
"We believe retail demand will remain high, and we hope the enhanced security will increase demand among institutional investors," he said, adding that the schedule for the deal remains subject to change, depending on market conditions.
For disclosure reasons, the state would have to put the deal in the market before Dec. 5, or wait until after the governor reveals his fiscal 2010 budget proposal in early January, Dresslar said.
If the notes do price in November as planned, they could arrive in the middle of a special session of the Legislature prompted by the state's budget woes.
A spokesman for Gov. Arnold Schwarzenegger said this week that the governor would call a special session in November. While it would come after the election, it would be a "lame duck" session for the current lawmakers, including 32 of 120 who are term-limited out of office after December. These are the same lawmakers that were unable to pass the current budget until 12 weeks into the current fiscal year.
The special session is needed soon, primarily because California is already $3 billion short on revenues from the budget adopted a month ago, Schwarzenegger said Tuesday at an appearance in Carson.
"Number two, I think it's important that we look at the housing crisis again and see if there is our number one priority," he said. "And number three, we've got to look at the economic stimulus package and see if we cannot push out more billions of dollars of already approved infrastructure bonds so we can get people back to work."
A budget-related special session is not expected to create any disclosure issues of the type that prompt the treasurer's office regular December issuance hiatus, Dresslar said, noting that the possibility of a special session was already cited in the offering documents for last week's note sale.
