Recently, California announced its plan to sell $2.5 billion of tax-exempt general obligation bonds, marking the state’s second largest offering this year. The purpose of this sale is to finance voter-approved projects, pay down outstanding commercial paper, and refund outstanding general obligation bonds. This move has garnered attention from various ratings agencies, including Fitch Ratings, S&P Global Ratings, and Moody’s Ratings, each providing their assessment of the state’s financial standing.
Fitch Ratings has assigned the debt AA rating with a stable outlook, while S&P Global Ratings rates California AA-minus with a stable outlook, and Moody’s Ratings provides an Aa2 rating with a negative outlook. Despite these varying ratings, the interest from investors remains strong. New sales of tax-exempt bonds in California have been in high demand, as buyers seek to shield their income from the state’s high taxes and secure yields before potential rate cuts by the Federal Reserve later in the year.
California’s high tax rates, especially for its highest earners, have led to a desire for tax-advantaged investments among residents. With the state being home to numerous billionaires and millionaires, there is a significant market for tax-exempt bonds that offer yields lower than AAA-rated benchmark muni securities. This trend has been observed in recent bond deals, where California issuances have sold at yields below the benchmark, appealing to investors seeking tax-efficient opportunities.
The upcoming bond sale is set to take place on August 27 through a negotiated sale, with Bank of America Corp. and Barclays PLC serving as joint senior managers. This follows the successful issuance of $671 million in bonds by the Trustees of the California State University on August 5. The bonds, which included a small taxable portion, were sold with yields up to 26 basis points below the benchmark, as reported by Bloomberg. This indicates a positive reception from investors and highlights the attractiveness of California’s bond offerings in the current market environment.
California’s $2.5 billion bond sale is poised to have a significant impact on the state’s financial landscape. With strong investor interest, favorable ratings from leading agencies, and a market demand for tax-advantaged investments, the issuance is set to be a success. As California continues to leverage its creditworthiness and investor appeal, the outcome of this bond sale will not only fund key projects but also demonstrate the state’s ability to navigate the complex bond market effectively.