California fills in more details on planned debt sale

More info for investors who want a piece of the $8.8 billion in short-term notes California will try to sell next week: The maturity date for the debt will be June 23, Treasurer Bill Lockyer?s office said Tuesday.

Lockyer now has posted the prospectus for the offering on his website, buycaliforniabonds.

The state still could decide to split the deal into two parts, with some of the notes maturing in May and the rest maturing June 23, Lockyer spokesman Tom Dresslar said. That decision might not be made until the end of this week or beginning of next week.

The state is hoping for a big turnout by individual investors, as usual with its debt sales. Lockyer will be running radio and newspaper ads pitching the securities, known as revenue anticipation notes, or RANs.

Brokers will take individual investors? orders for the debt (minimum order: $5,000) on Monday and Tuesday next week. Institutional investors will place their orders Wednesday, and that?s when the final yields will be set. Individual investors can cancel their orders if they don?t like the final yields.

Wall Street is expecting the annualized yield to be between 1% and 3%, depending on demand. The interest paid will be exempt from state and federal income taxes for Californians.

The deal should have natural appeal for many California investors who are keeping their cash in tax-free or taxable money market mutual funds, which pay next to nothing. The average annualized yield on the funds now is less than 0.1%.

But money funds still offer instant liquidity if you need to sell. The state?s RANs are better regarded as something you?d buy and hold to maturity.

As for the safety of the RANs: They don?t have the same ironclad repayment guarantee as the state?s general obligation bonds. But credit rating firms Moody?s Investors Service and Standard & Poor?s on Monday gave the debt high ratings, citing their expectations that the state in June will have the cash needed to repay investors as planned.

A third credit-rater, Fitch Ratings, on Tuesday gave the notes a grade of "F2," a weaker rating than Moody?s or S&P.

If the state is severely short of cash in June, the worst-case scenario probably would be this: RAN holders would get new debt securities paying the same interest rate but maturing sometime in the 2010-11 fiscal year.

A list of brokerages selling the notes for the state is on Lockyer?s buycaliforniabonds site.

-- Tom Petruno

Photo: California Treasurer Bill Lockyer