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California sets short-term debt sale for Sept. 21-23

September 02, 2009|Tom Petruno

California's planned sale of as much as $10.5 billion in short-term notes is scheduled for the week of Sept. 21, Treasurer Bill Lockyer's office said Tuesday.

The debt, known as revenue anticipation notes, or RANs, would bridge the gap in timing between near-term state spending needs and tax revenue expected later in the fiscal year.

The money raised also would repay a $1.5-billion loan that JPMorgan Chase & Co. made to the state last week. That loan will allow Lockyer to begin redeeming IOUs issued by Controller John Chiang since early July, when the state first began to run short of cash.

Lockyer is counting on heavy demand for RANs from individual investors looking for a place to stash savings, given the rock-bottom yields offered on alternative investments such as U.S. Treasury bills and money market funds.

It isn't clear what annualized yield the state will have to pay on the debt to attract investors, but most Wall Street estimates range from 1% to 3%. For California investors, that return would be exempt from state and federal income tax.

The notes will most likely mature in May or June. They must be paid off by June 30, the end of the current fiscal year.

Individual investors will be permitted to place orders for the notes Sept. 21 and 22, with a minimum order of $5,000. Institutional investors, such as mutual funds, then will place orders Sept. 23, which is the day the final yield on the notes will be set.

If individual investors don't like the final yield, they can rescind their orders.

Investors need a brokerage account to place orders for the notes and to buy them. The firms handling the sale will be led by JPMorgan, Citigroup Global Markets and De La Rosa & Co.


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