How Best to Describe California

Imagine if Lehman Brothers had been allowed to issue license plates:

In fact, there has been very little interest among institutional investors in municipal bonds since the financial markets began to collapse this fall, and states have had to rely on individual investors — far less plentiful and reliable than institutional investors — to buy bonds.
Right after Washington cobbled together its plan to bail out banks, California, which uses bonds to pay for projects as well as to cover its short-term cash needs, sold $5 billion in notes, and 80 percent of the buyers, rather than the typical 30 percent, were individuals.
Last month, when the state tried to restructure existing debt with an additional $523 million offering, it had to reduce the offering by two-thirds, said Tom Dresslar, the spokesman for Bill Lockyer, the California treasurer.
“The institutional investor interest was nil,” Mr. Dresslar said.
Further, the State Legislature’s inability, with the governor, to figure out a way to deal with the state’s $15 billion budget gap has weakened the market’s confidence in California, something other states could face if the fiscal situation deteriorates.
This month, Standard & Poor’s downgraded the $5 billion in revenue bonds issued by California last month and put more than $50 billion of debt on watch for a downgrade.
“The bottom line is we are not viewed as a quality investment,” Mr. Dresslar said, adding that California is not in position to offer the sort of fat interest rates needed to get offerings off the ground.

Posted by on December 23rd, 2008 at 3:16 pm


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