The HS Dent Financial Blog

RSS      

California Puts the Hard Sell On Individual Investors

California is in the process of selling $8.8 billion worth of notes that come due next May and June.  That would seem unusual given that just last fall the state couldn’t sell bonds, recently the state had to pay vendors with IOU’s, and starting in November the state will forcibly “borrow” money from taxpayers by over-collecting income tax which will be repaid in 2011.

So why is the sale of notes going so well?  Because the state is paying over 100 basis points more than other state issuances, and is paying 130 basis points more than comparable treasuries.  Now this probably would not persuade a sophisticated investor, since 100 basis points is merely 1%, but the state of California went further.  They advertised.  Using a multimedia campaign that involved radio and newspaper, the state sold itself to individual investors not only in California, but also in Texas and Florida.

For good measure, Moody’s and S&P gave the notes their highest rating.  I’m sure that’s very comforting, unless you are well aware of the quality of these rating services over the past several years.

Clamoring for California Debt

http://online.wsj.com/article/SB125362502390330681.html