LOS ANGELES — California general obligation bonds were trading like double-A credits ahead of the state's
California plans to price $1.35 billion in refunding GOs and $550 million in new money Wednesday after a retail order period Tuesday.
"I think the deal will go really well," said Michael Johnson, Managing Partner, Co-CIO & Head of Research Gurtin Fixed Income Management, LLC. "There is such a large demand for California bonds, I would expect considerable interest."
All of the news coming out of the state has been very positive for an extended period of time, Johnson said, so the markets seem to be very comfortable with the state's credit quality.
JPMorgan and Morgan Stanley are joint senior managers. Public Resources Advisory Group is financial advisor. Orrick Herrington & Sutcliffe LLP is bond counsel. Orrick and Nixon Peabody LLP are co-disclosure counsel.
The state is trading like a double-A and it recently got upgraded by Standard & Poor's, said Michael Ginestro, head of municipal credit research at Bel Air Investment Advisors.
On July 2, Standard & Poor's upgraded the state's general obligation bond rating to AA-minus from A-plus. Fitch Ratings assigns its A-plus rating and Moody's Investors its Aa3 rating.
The bonds were trading right on the double-A MMD Thursday, which was trading at 2.30% for 2024 maturities, while California was trading at 2.31% for 2024 maturities, Ginestro said, giving California GOs a plus 21 bid-ask spread off the MMD triple-A scale. Though Ginestro said Bel Air doesn't buy California GOs at these price levels, he expects the bonds will receive a healthy reception from buyers who like liquidity.
"These bonds help strengthen our communities by helping to fund the construction of roads, schools and other important infrastructure projects," California State Treasurer John Chiang said in a prepared statement.
Aided by temporary tax increases and a six-year bull market for equities, California is enjoying an extended period of strong revenue trends, Standard & Poor's analyst Gabriel Petek said the agency's newest rating release Wednesday.
"California's finances have been brought into structural alignment," he said.
The Department of Finance recently reported that tax collections for fiscal 2015 topped its updated May forecast by 0.6% on a cash basis.
Revenue collections look even stronger when compared with the assumptions included in the original fiscal 2015 budget. On that basis, the state controller reports that tax receipts for the year came in $6.8 billion, which is 6.4% higher than projected at the time of budget enactment.
