Wall Street awaits California's short-term borrowing plans

Despite the state's tattered financial image, many players in the municipal bond market had expected individual and institutional investors to step up for a RAN deal because of the anticipated interest rate. A RAN offering last October was wildly popular with individual investors. Warrants, however, could be a tougher sale because of their longer terms.

If the state is willing to pay an annualized yield of, say, 5.5% to get a warrant deal done, that would far exceed rates available to investors on other short-term debt. At that price, many yield-hungry investors might not be able to resist California, warts and all.

Consider: Los Angeles County paid just 0.8% to issue $1.3 billion in one-year tax-free notes June 10. One-year U.S. Treasury bills currently pay an annualized yield of about 0.5%.

Investors' gain, of course, would be California taxpayers' pain: That high interest cost would further sap the state budget. Lockyer in May sought a federal guarantee on the state's short-term borrowings to assure a lower interest rate, but the Obama administration turned him down.

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tom.petruno@latimes.com