LOS ANGELES — California is selling $750 million of general obligation debt next.
The bonds, marking the state's second GO offering this year, will price competitively Tuesday.
The largest auction is for $575 million of tax-exempt bonds, which will finance transportation projects in the state, according to Tom Dresslar, a spokesman for Treasurer Bill Lockyer.
The remaining $175 million will be taxable and includes $80 million of new money and $95 million that will go toward paying off taxable commercial paper notes as they mature.
The state can issue its GO debt through long-term bonds or commercial paper notes. It uses CP to provide flexibility for bond programs, such as to provide interim funding for voter-approved projects and to facilitate refunding of variable rate bonds into fixed rate bonds.
Currently, $1.73 billion in principal amount of CP notes is authorized under agreements with various banks. As of March 3, there was $892.3 million of CP notes outstanding.
"All the new taxable money is for the stem cell program," Dresslar said. "Of the CP pay-down, $81.4 million is for the stem cell program, and $13.6 million is for the K-12 charter school loan program."
In 2004, California voters approved Proposition 71, the California Stem Cell Research and Cures Act, to support stem cell research by authorizing $3 billion of GO bonds over a ten-year period.
California doesn't often sell its GO debt in competitive offerings — about 4.5% of its total GO debt issued since 2007 has been through competitive deals.
Dresslar said the state uses the threshold of $1 billion to $1.5 billion to determine whether it makes financial sense to conduct a competitive deal.
"But we don't automatically go competitive if the principal amount is below $1 billion to $1.5 billion," he said. "We make those decisions on a case-by-case basis."
Last year, the state sold nearly $800 million of GO bonds competitively, compared to $7.7 billion of GO debt in negotiated deals.
Since 2007, California has sold around $3.3 billion of competitive GO bonds, compared to $69.8 billion of negotiated GO bonds.
In the state's
JPMorgan won the bid on the $515.5 million portion, which had a final maturity in 2033. JPMorgan won with a 4.3259% TIC on the first series and a 4.7432% on the second series.
Next week's tax-exempt bonds will have a final maturity in 2044, and the taxable bonds will mature in 2019, according to the preliminary official statement.
Standard & Poor's and Fitch Ratings both affirmed their A ratings ahead of the deal. Fitch assigns a stable outlook, and Standard & Poor's gives a positive outlook.
"The positive outlook reflects our view that California's credit quality could strengthen within the next two years, resulting in an upgrade," said Standard & Poor's credit analyst David Hitchcock.
The agency said that apart from the current budget negotiations for fiscal 2015, the state is on track to finish the year in its strongest fiscal position of the past decade.
"The likelihood of an upgrade is greater if the enacted fiscal 2015 budget has provisions similar to the governor's proposal, which we believe build on the improvements made to the state's finances in recent years," Hitchcock said.
Analysts also cited the state's deep and diverse economy, as well as its recent commitment to aligning recurring revenues and expenses while also paying down budgetary debts.
Moody's Investors Service rates the state's GO debt a notch higher, with a stable outlook.
"The A1 rating on the state incorporates the state's volatile tax revenue structure and governance issues, particularly restrictions placed on the legislature in the budgeting process and a reluctance to build reserves, that have made it difficult for the state to address economic and revenue downturns," Moody's said.
The rating also incorporates the recent revenue surge and signs of economic recovery that have strengthened the state's financial position, as well as some modest governance changes that have led to three years of on-time budget passage, analysts said.
Orrick, Herrington & Sutcliffe LLP is bond counsel on next week's deals. Public Resources Advisory Group is financial advisor.
