California Bond Offering Shows Robust Demand


California paid slightly more Tuesday to entice buyers to a general obligation bond sale than it did just four months ago, but strong demand by both institutions and individuals may bode well for the state's planned sale of $12.5 billion in electricity bonds, traders said.

Merrill Lynch & Co. led an underwriting group that submitted the winning bid for the $1-billion offering Tuesday. The average interest rate paid by the state was 5.11%, or 0.30 point above the cost of general obligation bonds California issued in February.

Yields on long-term bonds in general are above their February levels, analysts noted.

"It was a solid showing and underscores the fact that despite the recent ups and downs California remains a credible credit," state Treasurer Phil Angelides said.

The bonds were closely watched as a sign of how the market views California in light of the energy crisis and recent downgrades of the state's credit rating on Wall Street.

Tuesday's deal "went very well," said Robert Gore, a veteran municipal bond trader at brokerage firm Crowell Weedon & Co. in Los Angeles. "Merrill had pre-sold a lot of it" to investors, a signal of strong demand, Gore said.

Tax-free yields on the offering ranged from 3.95% on bonds maturing in five years to 5.35% for the 20-year maturity and 5.45% for the 30-year issue, traders said. Bond proceeds will pay off other debt and finance infrastructure projects.

Analysts say it still isn't clear what kind of yields the state will have to pay on the record electricity revenue bond issue to be sold in August or September. The bonds will reimburse the state for the more than $7 billion it spent to purchase electricity for California utilities over the last year. The bonds will be repaid with charges paid by electricity consumers during the next 15 years.

"We have a lot of work to do to get the structure established on the energy bonds to attract buyers," Angelides said.

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