(Bloomberg News) California's largest offering of short-term notes in two years attracted $3.24 billion in orders from individual investors with yields of as much as 0.55 percent, according to Treasurer Bill Lockyer's office.
Individuals took 32 percent of the $10 billion sale, according to the treasurer's office. In September, individual investors accounted for 66 percent of a $5.4 billion offering with a top yield of 0.4 percent.
The most populous U.S. state offered revenue-anticipation notes to raise cash until the bulk of tax receipts arrive later in the year that ends June 30. Last year's sale probably went more briskly because it was smaller, said Michael E. Johnson, a managing director at Gurtin Fixed Income Management LLC which manages about $6.1 billion, including $4 billion in municipals.
"When you look at the pricing, it looks fair to us," Johnson said yesterday in a telephone interview from Solana Beach, California. "Given the size of it, they may need to add 10-ish basis points to get it done."
Final prices will be set today after institutional investors, such as pensions and insurers, place their orders, Tom Dresslar, a Lockyer spokesman, said yesterday in an e-mail. Both Standard & Poor's and Moody's Investors Service gave the notes top ratings.
"We're very satisfied with the retail results," Dresslar said. "Now we have to complete the job at the best possible price for taxpayers."
The notes offered yields of 0.3 percent to 0.4 percent for those coming due in May and 0.4 percent to 0.55 percent for a June maturity, according to a pricing memo e-mailed by Dresslar. The range is about 13 basis points to 38 basis points higher than yesterday's 0.17 percent yield on benchmark AAA one-year tax-exempt debt, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
Borrowing costs for the most indebted U.S. state have declined as Governor Jerry Brown, a Democrat, has taken steps to curb debt issuance and reduce the state's reliance on fiscal maneuvers such as internal loans and delaying payments owed to schools and local governments.
The note sale, combined with borrowing planned through October, means California will issue $17.48 billion in debt this year, up from $11.18 billion in 2011, according to calculations by Dresslar. In 2010, when the Build America Bonds program ended, California sold $21.12 billion in securities. The numbers include general-obligation bonds, revenue-anticipation notes and lease-revenue bonds issued by the state Public Works Board.
The state plans to sell $1.6 billion in general-obligation bonds on Sept. 25, including $1.3 billion for infrastructure projects and $300 million to refinance existing bonds, according to the treasurer's office.
The state also plans a $500 million sale Oct. 23 to refinance general-obligation bonds.
The Public Works Board scheduled a $250 million sale of lease-revenue bonds Sept. 13 for the University of California and California State University systems, and $548 million on Oct. 17 for various projects, according to Dresslar.
JPMorgan Chase & Co. and Wells Fargo & Co. are joint senior managers and Los Angeles-based bond firm De La Rosa & Co. is co- managing the sale.
Following the September sale, California had to borrow $1 billion more in February after tax collections fell short and spending topped expectations.
In the September sale, two-thirds of the debt was sold to individual investors. A portion that matured in May was priced at 0.38 percent, while the bulk of the bonds, which came due in June, were offered at 0.4 percent.
Those yields at the time were about 17 basis points higher than yields on AAA rated tax-exempt debt maturing in a year, according to data compiled by Bloomberg.