SAN FRANCISCO — California will need to borrow $10.5 billion to meet its cash-flow needs for the rest of the fiscal year, officials said yesterday, beginning with a $1.5 billion “interim” revenue anticipation note borrowing by Aug. 28.
The interim Rans are being issued in order to redeem registered warrants, or IOUs, the state has been issuing to many creditors since July 2.
“We anticipate selling the interim Rans via a private placement to an investment bank,” said Tom Dresslar, spokesman for Treasurer Bill Lockyer.
Because of the state’s budget and cash crunches, Controller John Chiang has issued almost $2 billion of IOUs to creditors without legal or constitutional protections, to conserve cash for creditors who enjoy such protections, including bondholders.
In late July, lawmakers adopted a package of budget revisions to close a budget gap of more than $20 billion that had opened up since an earlier deficit-reduction package was adopted in February.
The state’s Pooled Money Investment Board will hold an emergency meeting Aug. 21, at which it will be asked to approve a Sept. 4 redemption date for the IOUs, almost one month earlier than the Oct. 2 maturity date printed on the IOUs.
“This plan is a crucial step toward restoring some fiscal order to California,” Lockyer said in a statement. “Its successful implementation will rid us of the financial hardship and stigma caused by IOUs, and ensure the state has enough cash to provide crucial public services for the rest of the fiscal year.”
The interim Rans are to be taken out by mid-September, when the treasurer’s office plans to issue $10.5 billion of Rans in a deal designed to meet the state’s cash flow needs through fiscal 2010.
Those notes would be redeemed before the fiscal year closes at the end of June 2010.
The September Ran sale will be offered on the public markets and promoted to individual retail investors, Dresslar said. The underwriting team has not been chosen, he added.
Last October, in the crisis atmosphere following the Lehman Brothers bankruptcy, California sold $5 billion in Rans in a deal that drew almost $4 billion in retail orders, attracted by yields between 3.75% and 4.25%.
“While we can finally put an end to this difficult, and frankly, shameful chapter in the State’s history, it does not bring an end to our fiscal challenges,” Chiang said in a statement.