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California Plans $14B of Pre-Thanksgiving Debt

ALAMEDA, Calif. — California has firmed up its schedule for issuing almost $14 billion of debt before the Thanksgiving holiday.

Finance officials are trying to squeeze the sales into the narrow timeframe created by this year’s record-long budget delay. The budget was signed Oct. 8 — 100 days after the fiscal year began.

The state Treasurer’s Office had already launched its advertising campaign for the sale of $10 billion of revenue anticipation notes, which will be used to smooth out the state’s cash-flow needs over the remainder of the fiscal year. The notes will mature by the end of June. JPMorgan is senior manager for a syndicate of 37 broker dealers.

The note deal will go to market without across-the-board top-tier ratings. Fitch Ratings late Monday assigned its mid-tier F2 short-term rating to the Rans.

Standard and Poor’s and Moody’s Investors Service each assigned top-tier ratings of SP-1 and MIG-1, respectively.

California faced the same rating split in September 2009, when it sold $8.8 billion of Rans.

A two-day retail order period for the Rans begins Nov. 15, with final pricing for institutions Nov. 17.

California will price $2 billion of taxable long-term general obligation Build America Bonds on Nov. 18, to be followed by the pricing of $1.75 billion of tax-exempt GO bonds. Final pricing is Nov. 23 — two days before Thanksgiving. There will be a two-day retail order period on Nov. 19 and Nov. 22.

As with the Ran deal, the state will roll out its Buy California Bonds marketing campaign for the tax-exempt bonds, with radio and newspaper ads, said Joe DeAnda, spokesman for Treasurer Bill Lockyer.

Citi, RBC Capital Markets, and Siebert Brandford Shank & Co. are joint book-running senior managers for both GO deals.

The state was unable to access the debt market during the 100-day budget standoff, since it could not prepare accurate offering documents without a budget in place. Now it is rushing to get deals done before Thanksgiving, when the state enters an issuance “blackout” that lasts until incoming governor Jerry Brown announces his 2012 budget proposal in January.

California missed out on a favorable environment for issuers through late summer and early autumn, said Ken Naehu, managing director for fixed income at Bel Air Investment Advisors in Los Angeles.

“That was a time when there was a lot of money chasing too few bonds,” he said.

Now the supply equation has turned around, as has the market’s tone, Naehu said.

“Just a few weeks ago, the market was in the buy anything mode,” he said. “The market seems to have shifted [to] a cautious tone of looking for value.”

That means California is likely to have to pay a price to place its debt, particularly given the continuous drumbeat of bad fiscal news about the state government.

“To move that amount of bonds is going to require some spread,” he said.

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