Pandemic-driven uncertainty means California bond deal is day-to-day

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The timing of a $1.5 billion deal California had planned to price Thursday is no longer firm amid massive dislocations in the markets.

It has not released preliminary offering documents.

“We are taking it day by day – and we will take the same approach with the rest of the calendar,” California State Treasurer Fiona Ma said.

"We are taking it day-by-day," California Treasurer Fiona Ma said.

In its weekly "Muni Outlook" email investor outreach vendor BondLink included a notice saying that due to current market volatility, many issuers are evaluating conditions and making decisions regarding their bond sales each day.

“We encourage you to bookmark your preferred issuers and check back regularly to ensure you have the most recent information,” according to the BondLink alert.

Nearly the entire bond calendar for this week has gone day-to-day, which enables issuers to get in and out quickly if market conditions stabilize.

No decision has been made on the deal the state had planned to price Thursday, said Tim Schaefer, the state's deputy treasurer for public finance. The state of California’s offering summary on BondLink lists the $1.5 billion State Public Works Board taxable sale date as to be determined.

California usually pushes out bonds in a large series of spring sales from February through April and then again in the fall after the state budget is approved.

In addition to the lease revenue bonds, the state had planned to price $2.1 billion in general obligation bonds on April 14-15 and another $135 million in lease revenue and lease revenue refunding bonds on April 21. Those dates are still listed on the state’s bond calendar.

“The state will respond to the situation presented to us once the market stabilizes,” Schaefer said.

The state doesn’t plan to sell more at the long end of the curve in response to the move by investors to pull out of the short end for cash.

“That is generally not our practice,” Schaefer said. “On new money, we seek approximately level debt service, integrated into the overall debt portfolio,” he said.

With muni yields at low levels historically, the question has arisen as to whether issuers would be willing to accept a yield penalty to price bonds.

“It depends on what you call a 'yield penalty,' Schaefer said. “For many years, investors, large and small, retail and institutional have proven to be willing to purchase California’s securities and they continue to demonstrate that. We have no reason to believe that pattern will change."

As a fundamental principle, Schaefer said, credit spreads change in response to investment patterns and money flows.

"We are keenly aware of how those spreads can expand and contract, because of market forces, not something that we choose to do, or not do," he said.

Ma said it is too early to comment on whether the state will look to ratchet up bond sales to spark construction projects in a stimulus move as it did in 2008 and 2009.

"Our first priority is public health," Ma said. "That is what we are all focused on, so I haven't talked to the Department of Finance about issuing any new money right now."

The treasurer said she has been speaking regularly with Keely Bosler, director of the state's Department of Finance, as state officials look to roll out programs to deal with the crisis.

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