Investors have spoken: The Golden State is still golden.
Despite a global financial crisis that has all but petrified credit markets, California Treasurer Bill Lockyer had no trouble selling $5 billion in short-term notes during a three-day sale that ended Thursday. The buyers were both individuals and large institutional investors.
"The success of this deal far surpassed all expectations," Lockyer said in a press statement.
The state capped its sale Thursday by selling close to $1 billion to institutional investors.
The state routinely sells Revenue Advance Notes, or RANs, to bridge the difference between the expenses and its commonly slow tax revenue stream at the end of the year. Officials estimated California would need $7 billion to keep the cash flowing until tax money picks up again.
But Lockyer and Gov. Arnold Schwarzenegger had publicly worried that investors, spooked this year by Wall Street's turmoil, might not be in a buying mood.
Small investors put those fears to rest on Tuesday and Wednesday by snapping up $3.92 billion of the $4 billion in notes initially offered.
The unexpected stampede prodded Lockyer to put up another $1 billion of notes for sale to institutional investors. After those notes quickly sold, the Treasurer's Office announced the official yields: 3.75 percent for notes maturing on May 20 and 4.25 percent for notes maturing on June 22.
Folsom resident Jay O'Brien said he bought $15,000 in RANs on Wednesday, enticed by their tax-free returns and government-backed security.
"It's a good deal," said O'Brien, who in June will collect about $425 on his investment. "I look at it like this: If the state of California goes away, I'll have a lot more to worry about than getting my money back."
Still, some potential investors such as Mike Garcia of Elk Grove concluded that the state's RAN rules were "too much of a hassle." He especially didn't like having to go through a state-registered brokerage firm.
"Why pay a broker?" Garcia said. "There's no fee with U.S. savings bonds, and I can buy those online."
Lockyer spokesman Tom Dresslar said Thursday that, unlike the federal government, the state can't legally sell notes or bonds directly, "so we have to have a middle man. That's standard procedure."
Dresslar couldn't comment on specifics of the $5 billion note sale. Brokers tend to bundle individual orders together before submitting them to the state, so it's difficult to determine the number or average amount of purchases, he said.
Several RAN brokerages, including Piper Jaffray, Wells Fargo Institutional Securities LLC and Lam Securities Investments Inc. – all in San Francisco – either couldn't be reached or wouldn't comment.
Another $2 billion RAN offer is coming, which will round out the $7 billion in short-term notes that Lockyer is authorized to sell.
There's no sale date yet but, like the current offering, small investors will get first dibs. It's also possible that, if the state's tax revenue withers more than expected, the treasurer may bring more notes to market.
"We went into this estimating our total needs would be $7 billion. That's our current number," Dresslar said. "Who knows what the future will bring?"
Call The Bee's Jon Ortiz, (916) 321-1102.
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