California expected to boost bond sale amid strong demand

California expected to boost bond sale amid strong demand

Once again, a big bond sale by California is shaping up to be a hit with investors -- despite the state’s low credit rating.

Treasurer Bill Lockyer’s plan to sell up to $4 billion in taxable bonds is said to be attracting heavy interest from big investors such as pension funds. Bidding appears to be strong enough to allow the state’s investment banks to supersize the deal, perhaps to as much as $7 billion, according to municipal bond market analysts.

The bonds, which will raise money for infrastructure projects, are expected to be priced Wednesday.

The state is selling taxable, rather than tax-free, bonds in part to take advantage of the federal government’s new Build America Bonds plan. Under that program, which Congress passed as part of the economic-stimulus package, the Treasury picks up 35% of the annual interest cost of bonds sold to finance public works.

The talk in the marketplace today was that the 30-year bonds in the state’s offering would pay an annualized yield of about 7.4%. With the government covering 35% of that, the net interest cost to the state would be about 4.8%.

That would be a significant savings compared with the 6.1% yield California paid on 30-year tax-free bonds it sold March 24.

Debt issuance under the Build America Bonds plan could help Lockyer whittle down the $61-billion backlog of voter-approved infrastructure bonds he has left to sell. More public works projects would mean more jobs, at a time of soaring unemployment in California.

As I noted in this post last week, the state is tailoring the taxable bond sale for big investors. Individual investors, who were voracious buyers of the tax-free bonds sold in March, weren’t given the usual preferential treatment in the taxable-bond sale.

-- Tom Petruno

Photo: California Treasurer Bill Lockyer

Yahoo profits drop 80%

SAN FRANCISCOYAHOO! on Tuesday reported that its net profit slumped nearly 80 per cent in the first three months of the year and that it will trim its workforce by five per cent to cut costs.

Yahoo! said its net income for the first quarter was US$117.6 million (S$177 million), or eight cents per share, compared to US$536.8 million, or 37 cents per share, during the same period last year.
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