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


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California’s planned sale of up to $10.5 billion in short-term notes is scheduled for the week of Sept. 21, Treasurer Bill Lockyer’s office said today.

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

The money raised also will 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 available 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 Wall Street estimates generally 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 on Sept. 21 and 22 via brokerages, with a minimum order of $5,000. Institutional investors, such as mutual funds, then will place orders on Sept. 23, and that’s 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.

You’ll have to have a brokerage account to buy the notes. The investment banks handling the sale will be led by JPMorgan, Citigroup Global Markets and De La Rosa & Co.

-- Tom Petruno