California is gearing up to launch a $2.5 billion tax-exempt general obligation bond sale, marking the state’s second largest bond offering of the year. The funds raised from this sale will be allocated towards financing voter-approved projects, paying off outstanding commercial paper, and refunding existing general obligation bonds.
Fitch Ratings has assigned a AA rating with a stable outlook to California’s debt, while S&P Global Ratings rates it AA-minus with a stable outlook, and Moody’s Ratings gives it an Aa2 rating with a negative outlook. These solid ratings reflect the state’s strong creditworthiness and ability to meet its financial obligations.
The bonds are scheduled to be priced through a negotiated sale on August 27, with Bank of America Corp. and Barclays PLC acting as joint senior managers. The high demand for tax-exempt investments in California, driven by the state’s high tax rates and expectations of Federal Reserve rate cuts, has created a favorable environment for bond sales. With California imposing a top tax rate of 13.3%, investors are keen on tax-advantaged securities, leading to lower yields for California bonds compared to AAA-rated municipal securities.
Prior to the upcoming $2.5 billion bond offering, the Trustees of the California State University conducted a bond sale on August 5, raising $671 million. The majority of these bonds were tax-exempt, except for a $11.6 million taxable segment. Despite this, the yields on these bonds were up to 26 basis points below the benchmark AAA-rated municipal securities, indicative of strong investor interest in California’s offerings.
California’s upcoming $2.5 billion tax-exempt general obligation bond sale highlights the state’s ability to attract investor appetite and secure favorable financing for essential projects. The strong credit ratings from leading agencies, coupled with the state’s tax environment, have positioned California as an attractive destination for municipal bond investors seeking tax-advantaged opportunities. With demand outpacing supply, it is evident that California’s bond offerings continue to be well-received in the market.