Bond rating service Standard & Poor's on Friday placed a "credit watch with negative implications" on California's credit rating ahead of the planned upcoming sale of $4 billion of short-term securities.
In all, the state says it needs to borrow $7 billion -- $4 billion next week and $3 billion later -- to give it the cash to pay for routine expenses before tax revenues pick up early next year.
S&P; says it's not worried about California's raising enough money to pay back a loan. It rates the state A+, its fifth-highest level.
But the agency says it is less confident that California will find enough institutional and individual investors for next week's sale of short-term notes, given the difficulty companies and state and local governments are having borrowing money.
S&P; estimates that the state "will have enough cash and borrowable resources to operate into November," if next week's bond sale is not successful. After that, the governor may have to defer spending or slow routine payments to school districts, the agency warned.
H.D. Palmer, a spokesman for Gov. Arnold Schwarzenegger's Finance Department, stressed that the administration "remains cautiously optimistic that we will be successful when we go to market." Once the sale is completed, S&P; is expected to lift its credit watch, Palmer said.