California took orders from individual investors for 89 percent of tax-exempt bonds offered to them in the state’s first debt sale since it was upgraded by Standard & Poor’s in January, the treasurer’s office said.
Individuals booked $795.4 million of the $888.9 million in debt available during two days of so-called retail sales that ended yesterday, according to Tom Dresslar, a spokesman for California Treasurer Bill Lockyer. The state plans to sell a total of $2.16 billion in tax-exempts when institutional investors such as mutual funds complete ordering today.
The preliminary yield on debt maturing in 2023 remained at 2.54 percent yesterday, or about 0.47 percentage point above a Bloomberg Valuation index of AAA munis. Thirty-year bonds were offered yesterday at a preliminary yield of 4 percent, a spread of 94 basis points to the index. A basis point is 0.01 percentage point.
“We think the retail results are outstanding in a market where investors are thirsting for yield,” Dresslar said in a statement.
The most-populous U.S. state earned its first upgrade from S&P since 2006 after Governor Jerry Brown curbed pension costs, won voter support for a tax boost and proposed a budget for next fiscal year that projects a surplus. New York-based S&P raised California to A, its sixth-highest rank, lifting it out of a tie with Illinois as the lowest-rated state.
Individual orders accounted for 37 percent of the $2.16 billion tax-exempt bonds Lockyer is selling. Of that amount, $1.1 billion will be used to refinance existing debt and lower borrowing costs.
Lockyer also sold $100 million of taxable bonds yesterday maturing in 2015 to yield 0.64 percent, or 38 basis points more than comparable U.S. Treasuries, and $264 million of three-year taxable securities, priced to yield 0.93 percent, a spread of 53 basis points, Dresslar said.
Separately, Lockyer remarketed $228 million of Build America Bonds at 4.99 percent for a 2039 maturity, about 175 basis points over the Treasury rate. With a 35 percent federal subsidy on the interest payments, the net yield on the bonds is 3.24 percent, Dresslar said.
The Build America Bond program gave states and cities federal subsides on interest as part of an economic stimulus plan. California and its local governments sold more than $39 billion of the debt.
The relative borrowing cost for issuers in the state has been cut in half since Brown, a 74-year-old Democrat, took office in 2011. The extra yield over top-rated municipal bonds that investors demand to own 10-year debt of the state and its localities was 0.52 percentage point March 11, the narrowest since November 2008, data compiled by Bloomberg show.
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