As California struggled to balance its budget, it got a bit of good news in the municipal bond market — the Department of Water Resources found buyers for $348.7 million of power supply revenue bonds that failed to sell in November.

The sale — which was technically a remarketing of bonds undergoing a mode conversion from a weekly variable rate to a fixed rate — shows that demand has to some degree returned to the long end of the California muni market. It was the state’s first big deal of the year.

In November, the state was only able to place $173 million of the debt, all of it going to retail buyers. That forced $350 million of bonds back to liquidity banks, requiring the state to pay a penalty rate of 5.25% with an accelerated amortization.

The yields on the bonds that priced this week, which mature from 2020 to 2022, ranged from 4.47% to 4.88%. The state sold $115.3 million of the debt to retail.

The bonds, which is backed by surcharges paid by customers of the state’s three big investor-owned utilities, were rated Aa3 by Moody’s Investors Service and A-plus by Standard & Poor’s and Fitch Ratings. The debt was originally issued to pay for power during the blackouts of 2001 and 2002.

“Obviously, we’re pleased with the results,” said Tom Dresslar, a spokesman for Treasurer Bill Lockyer. “We had enough institutional demand to knock a couple of basis points off the final” yields.

JPMorgan led a syndicate of 10 banks selling the debt.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.