Golden State Attempts to Restructure Debt

California is trying a new approach to sell bonds to restructure its debts. It’s considering selling on the Federal government sponsored municipal bond market. From Financial Times via CNBC:

The US state of California on Wednesday said it would restructure upcoming bond issues as it tries to raise $14 billion in the middle of a sell-off in the municipal bond market.

The decision to shift more of the sale to a government-subsidized market for municipal bonds would lower the cost of the new debt. This follows other local borrowers who have delayed or downsized bond deals in a market downturn that has produced some of the largest one-day rises in yields on “munis” since the height of the financial crisis.At the heart of the gloom is both the recent rise in US Treasury bond yields and the looming expiry of the Build America Bonds (BAB) program, which has buttressed the $2,800 billion market where states and municipalities have raised money since the financial crisis.

Most munis offer tax breaks that make the bonds attractive largely to wealthy US individuals. In an effort to ease credit to muni borrowers after the crisis, the federal government introduced the BAB program to subsidize taxable debt to attract a wide range of institutional investors.

The BAB program expires at the end of the year. This has resulted in wave of issuance and concerns about how the traditional market will fare under the renewed weight of the full borrowing needs of states and municipalities at a time when local governments are still under pressure from the recession.

Good Luck California We’ll Need it!( I live in LA County)

Read it!


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