WEB EXCLUSIVE: S&P Rates California Rans SP-1; Puts GOs on Negative Watch

SAN FRANCISCO – Standard & Poor’s has assigned an SP-1 rating to California’s upcoming $4 billion revenue anticipation note sale, but placed the state’s A-plus general obligation bond rating on negative CreditWatch until the state demonstrates that it can successfully sell its short-term notes.

The week of the 13th's planned $4 billion sale is the first installment toward $7 billion of Rans the state needs to issue during the current fiscal year to meet cash-flow requirements.

The SP-1 rating, denoting a “strong capacity to pay principal and interest,” is Standard & Poor’s top-tier rating category for short-term municipals, though it falls short of the SP-1-plus given to those with “very strong capacity.”

“We believe the cash flows can readily support borrowing of up to $7 billion,” according to the agency’s news release.

The negative watch on the state’s GO bond rating reflects concerns about California’s ability to access the short-term market “as a result of recent market conditions,” according to Standard & Poor’s.

“The CreditWatch will be removed as soon as, in our view, the state is successful in obtaining sufficient cash flow financing,” the news release said. “If market access remains difficult, we believe the state will have enough cash and borrowable resources to operate into November. Without a successful infusion of cash over the next six to eight weeks, however, we believe, the state may be required to defer spending by executive order, schedule a special session of the Legislature and/or possibly slow payments to local units, including school districts. We believe these actions could pressure performance and cause an erosion of the margin of safety provided to bondholders and place downward pressure on the state’s rating.”

 

 

 

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