California delays pricing of short-term muni note deal

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California has delayed by one day the final pricing of its $10-billion short-term note offering because of a legal issue unrelated to the sale.

A lawsuit challenging the state’s plans to sell and lease back 11 office properties was filed in San Francisco Superior Court on Tuesday. Because failure to complete the transaction would widen the state’s projected budget gap, Treasurer Bill Lockyer said he has been forced to amend disclosure documents to investors buying the state’s notes.


That means the $5.89 billion in orders Lockyer took from individual investors Monday and Tuesday must be reconfirmed.

Lockyer had been planning to take institutional orders for the so-called revenue anticipation notes, or RANs, on Wednesday and complete the sale the same day. Those orders now will be taken on Thursday instead, his office said.

The state is expecting to pay an annualized tax-free yield of 1.25% on the series of notes maturing May 25, 2011, and 1.50% on the series maturing June 28. The final yields will be set after institutional investors have put in their orders.

The three major credit-rating firms, Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, all reconfirmed their original quality ratings on the notes despite the court suit.

The legal hang-up over the sale of the buildings also will delay by one day the state’s planned sale of $2 billion in Build America Bonds to finance voter-approved infrastructure projects. That deal was supposed to be priced Thursday, but now will be pushed to Friday, Lockyer said.

-- Tom Petruno