State set to redeem its IOUs

California will begin redeeming its IOUs as scheduled beginning Sept. 4, after the state Thursday closed on a $1.5-billion short-term loan from JPMorgan Chase Inc., state Treasurer Bill Lockyer said.

The state will pay JPMorgan Chase an annualized interest rate of 3% on the money. The loan is expected to be repaid by the end of September, after Lockyer sells investors up to $10.5 billion of so-called revenue anticipation notes.

The state began issuing IOUs, formally known as registered warrants, to vendors and other creditors in early July after running short on cash. Through Tuesday, 414,000 IOUs worth $2.26 billion were outstanding, according to state Controller John Chiang.

Holders of the IOUs will earn a 3.75% annualized tax-free interest rate on the paper until the redemption date.

Details on how to redeem the IOUs are available at www.treasurer.ca.gov.