California to Sell $300M of Floating Rate GOs

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LOS ANGELES — California is planning to sell $300 million of general obligation bonds on Wednesday to finance highway safety, traffic reduction, air quality, and port security projects.

The deal will be sold in three $100 million series of floating rate bonds, each priced separately by BofA Merrill Lynch, Morgan Stanley, and Wells Fargo Securities.

Orrick, Herrington & Sutcliffe LLP is bond counsel and Montague DeRose and Associates, LLC is financial advisor.

The bonds will pay a floating rate of interest, reset weekly at a spread over the seven-day SIFMA Index or a percentage of one-month LIBOR.

Each series of bonds will have mandatory tenders and are expected to be paid on their respective mandatory put dates with remarketing proceeds. If remarketing proceeds are not available, it is not an event of default. Instead, the interest rate will jump to successively higher rates until they are remarketed, redeemed, or paid at a final maturity.

"We view the state's credit quality to be stable in light of a stronger budgetary and cash position, both on a current and projected basis," Standard & Poor's analyst Gabriel Petek said in the agency's credit report.

Standard & Poor's assigns the bonds an A rating and stable outlook.

Fitch Ratings also gave the bonds an A rating and stable outlook, based on the state's fiscal management improvement, wealthy and diverse economy, and moderate debt burden. Fitch said the rating is sensitive to the continuation of the state's recent fiscal discipline and its ability and willingness to continue addressing numerous fiscal challenges.

Moody's Investors Service rates the bonds a notch higher, also with a stable outlook, citing the state's recent revenue surge and signs of economic recovery.

"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.

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