California issued $2.58 billion in bonds for various capital purposes.
The state sold the bonds in two series. The first series, consisting of $1.05 billion, matures between 2026 and 2053, yielding between 3.08% and 4.11%. The second series, consisting of $1.53 billion, mature between 2024 and 2043, yielding between 3.03% and 4.17%. The securities received a rating of AA from Fitch Ratings, AA- from S&P Global Ratings, and Aa2 from Moody’s Investors Service, which assigned a negative outlook.
“The negative outlook reflects a weakened and uncertain revenue environment in California that raises the possibility of extended pressure on the state’s budget,” according to Moody’s.
Facing that uncertainty, California has sought to reign in its spending for the upcoming fiscal year. In its enacted budget for 2024, the state closed an almost $32 billion budget shortfall. California revenues, most of which are derived in taxes from wealthy residents, slowed last year amid inflation and stock market volatility.
The state will use proceeds from the first series of bonds to make capital improvements, and proceeds from the second series to refund a previous issuance. The largest capital improvement disbursement, about $527 million, is directed toward highway safety, traffic reduction, air quality, and port security.
California has by far the largest economy of any state. The bonds are general obligations of the state, backed by its full faith and credit. The state expects to issue additional general obligation bonds before the end of this year.
Citigroup Global Markets Inc and RBC Capital Markets, LLC served as lead underwriters on the issuance, purchasing the bonds for $2.77 billion. The price reflected a premium of almost $200 million.