California Readies $1.3B GO Offering

SAN FRANCISCO — California has scheduled a $1.3 billion new-money and refunding bond sale for next month.

The general obligation offering is tentatively set for the second week of April. It will hit the market just after this week’s California State Public Works Board sale of more than $900 million in lease revenue bonds.

“There is definitely a little more supply in the market and the market is still digesting in the belly the previous California GO deal,” said Kelly Wine, executive vice president of R-H Investment Corp., a broker-dealer in Los Angeles. “What you are going to see is likely slightly wider spreads, especially in the 10-year range.”

Market yields started rising over the past two weeks amid increasing supply and better economic news that helped drive up Treasury bond yields as well.

The State Public Works Board deal will be one of the largest issuances ever for the agency, according to the California treasurer’s office spokesman, Tom Dresslar.

The deal will price for retail investors on Wednesday and for institutional investors on Thursday.

Moody’s Investors Service rates the Public Works Board bonds A2; Standard & Poor’s and Fitch Ratings both rate them BBB-plus.

Goldman, Sachs & Co. is the joint-senior manager of the deal along with Siebert Brandford Shank & Co.

Dresslar said the split between new money and refunding bonds for the April sale hasn’t yet been determined.

For the April GO sale, Citi, Bank of America Merrill Lynch and Morgan Stanley will lead the underwriting.

At the beginning of the month, California completed selling $1.98 billion of GO refunding bonds, nearly half of which went to retail.

The state’s five-year bonds grabbed a yield of 1.28%, 10-year bonds 2.78% and 4.16% for 26-year maturities.

Treasurer Bill Lockyer said the refunding saved the state $250 million in debt service payments.

In October, the state’s previous tax-exempt GO sale, which was also $2 billion, the treasurer’s office sold five-year bonds at a 2.28% yield, 10-year maturities at 3.70% and 20-year bonds at 5.03%.

California state issuance dropped 53% to $4.9 billion in 2011, from $10.5 billion in 2010.

The state set a municipal market record by issuing more than $23 billion of debt in 2009.

State budget plans outline the issuance of about $5.2 billion of new-money GO debt in 2012.

Standard & Poor’s revised the outlook on its A-minus rating for California GO bonds to positive from stable.

It said there is a one in three chance it could raise the state’s rating in the next two years.

Fitch Ratings rates California A-minus with a stable outlook. Moody’s rates the credit A1, two notches higher, also with a stable outlook.

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