California Bond Sale Stirs Interest, But Investors Remain Cautious

Wall Street Journal (paid subscribers only) ^ | April 18, 2002 | By RICHARD A. BRAVO and TYLER LIFTON, Dow Jones Newswires

[snopercod]

NEW YORK -- California's sale of $800 million in general obligation bonds stirred investor interest, but not enough for a first-day sellout.

Meanwhile, a $500 million issue by the Port Authority of New York and New Jersey found good investor interest, thanks in part to tax exemption in New York and New Jersey.

[snopercod]

"The securities weren't completely sold..."

We do have a bridge for sale, though.

[snopercod]

Whaddayathink?

[galt-jw]

check vanguard long term bond funds. AAA rated, too.

[Ernest_at_the_Beach]

Thsnks for posting this. I'll ping some folks!

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[Dog Gone]

This is interesting. General obligation bonds are guaranteed to be repaid by the California taxpayer. If these didn't sell out, imagine the demand for the $12 billion in power bonds that aren't guaranteed by the full faith and credit of California.

No wonder those haven't actually been issued.

[Robert357]

Snopercod: Thanks for the post! Good catch! Thanks for the heads up as well.
Ernest: Thanks for the heads up
Dog Gone; very good comment about what would be the demand for $4 to $12 billion, if they can't clear this small issue.

....A person at Lehman Brothers, which headed an underwriting group that won the bonds in the competitive sale...

Let me translate for you. Lehman Brothers competed with other investment bankers to buy the bonds for a certain price. Leham Brothers intends to make money doing this. They usually will buy the bonds at a slight discount (tax exempt bonds are not suppose to exceed 2% issuance costs) and then sell at face value, if there are no changes in the interest rates from when the pricing date. If the bonds take a long time to sell, Lehman brothers is "at risk for swings in the market." Investment bankers don't like to be at risk. They like bonds to sell out quickly. The next bond sale, unless California makes the bonds a lot more "desirable to the market" (read that higher cost to California), investment bankers will want a greater profit margin on the sale. This means that California will either pay more to investment bankers or California will pay more to investors or California will pay more to both. I have been there working with investment bankers and financial planners figuring out different ways to make the bonds either more attractive to investors or more attractive to the investment banker.

This is not good news for California. This is going to be a wake up call. What will be interesting will be to see what is said after the first round of spin to cover up the problem. I would speculate that there are going to be some very serious meetings between the state and investment bankers. I would also anticipate that you will shortly hear about leaders from the state and the legislature going on a bond investor tour to financial centers to tell folks that California will honor its debts and that California has a plan to solve all its financial problems and that the plan looks like...... Then on the otherhand, that would mean folks would commit themselves to tax increses in an election year! This is going to get interesting. It is also going to be fun to see how the politicians talk to wall street through one side of their mouth and deny it while on the stump running for office with the general public.

[SierraWasp]

"Whaddayathink?"

I think Gray Davis and the Demonicrat SuperMajority and a plurality of voters have no sense whatsoever!!!

Furthermore... I think they're into "kinky" fiscal policy in that they want our descendents sold into "bondage!"

Carry_Okie was sorta right when they were squandering the "surplus" on lousy energy negotiations when he said it would at least keep them from squandering on liberal socialistic programs and other social engineering... BUT, HE FORGOT THEY HAVE OUR CREDIT CARD!!!

There, that's what I think! Thanks for asking.(grin)

Taxes are bad enough, but taxes with interest built in REALLY SUX CANAL WATER!!!

There, that's what I think! Thanks for asking.(grin)

[Dog Gone]

This is not good news for California. This is going to be a wake up call. What will be interesting will be to see what is said after the first round of spin to cover up the problem.

That's exactly right. The free market is superb at measuring risk. It doesn't care a hoot about politics and it never makes political statements. It is oblivious to those things.

This is an unmistakeable sign that California is in trouble. It also means that Lehman underestimated the problem, and some people there made a huge mistake.

California is a credit risk, and just like people with lousy credit, the loans they are able to get carry very high interest rates.

I wouldn't buy any of these bonds remaining to be sold by Lehman. The next batch will carry a much higher interest rate.

[Ernest_at_the_Beach]

Let's add this to the CalGov2002 list. Seems like Davis has some explaining to do!!

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[Carry_Okie]

BUT, HE FORGOT THEY HAVE OUR CREDIT CARD!!!

Not at all. It's less than it would have been. You're right about the sucking part. We all knew ahout that.

[Grampa Dave]

You are walking down a street in Sacramento with your family, and a seedy looking Davis in a shabby Trench Coat approaches. You stand between your family and this deranged and dangerous looking Davis.

He looks at you and says "Psst over here Buddy! Have I got a deal for you!""

Being a wise and sane person, you say "Sorry, I'm not going over there. You stay there and tell me what you want to say."

The seedy Davis hurls open his shabby Trench Coat with each arm. You immediately put you hands over the eyes of any women and children and turn them away from the horrible sight.

Inside the shabby trench coat are hundreds of pockets sewn in. In each pocket is an unsold Kali Bond. The seedy Davis says, "I'll sell this $1,000 bond for only $500!"

You say no and start to walk away. The seedy Davis hollers "You can buy this $1,000 bond for only $400!"

You grab your wife, children and grandchildren and run for safety as your hear him scream, "Two 1,000 $ bonds for only $100 or your best offer!"

Suddenly you notice thousands of people like you running away from the Seedy Davis all of them screaming:

VOTE FOR SIMON THE CLEAN/SANE ONE!

[Grampa Dave]

DG posted: This is interesting. General obligation bonds are guaranteed to be repaid by the California taxpayer. If these didn't sell out, imagine the demand for the $12 billion in power bonds that aren't guaranteed by the full faith and credit of California.

See my reply #11 about what will happen when these if you will pardon the expression, when these real doggie power bonds come on the market.

Watch and see how much of these bonds will be bought by CalPers and the various Unions in Kaliland. The deals to sell these stupid bonds will be brutal behind closed liberal doors.

I will be sending emails to PIMCO, Vanguard and Fidelity that if they buy any of these bonds, we will be cashing in all of our bond funds with them, that end up buying any power bond funds. Watch Met West closely, since they hired Goron for several million $'s year to do nothing. A big contributor to Clinton is in this type of business selling inner city housing loans to retirement plans.

[Ernest_at_the_Beach]

LOL!

Shabby overcoat eh!

Probably has some of those Rolex (Like) watches from China too that can be bought cheap!

[Liz]

I will be sending emails to PIMCO, Vanguard and Fidelity that if they buy any of these bonds,
we will be cashing in all of our bond funds with them, that end up buying any power bond funds.

Good show, Gramps. They sure don't like activist investors, people who see through their schemes.

[Liz]

Seems like Davis has some explaining to do!!

Maybe Simon can explain it better than Davis.

[snopercod]

LOL!

[snopercod]

Great, my mother owns some Liberty All Star Fund.

[Dog Gone]

Man, you missed your calling. You should have been the author of seedy true-crime books!