Cal State floats $458 million in bonds in ‘difficult’ market

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Individual investors seemed lukewarm toward the sale of $458 million in tax-free municipal bonds by the California State University system this week.

State Treasurer Bill Lockyer’s office said individuals put in $107 million in orders for the bonds Wednesday, or 23% of the total. That left institutional investors to buy the rest Thursday.

By contrast, individuals were ravenous for the state’s sale of short-term IOUs last October. They bought almost 80% of that $5-billion deal.

The Cal State securities are revenue bonds, meaning they’re backed by revenue from the system, including student housing fees and parking fees. The state’s own IOUs are backed by its taxing power. But the Cal State bonds actually have a higher credit rating -- Aa3 by Moody’s Investors Service -- compared with the state’s bonds, which are rated A1.

With muni bond yields in general on the rise in recent weeks as investors have pulled back, Lockyer’s office described the market as ‘difficult.’ The state had to bump up yields on the longer-term Cal State issues in the deal to sell them.

The bonds, which will fund building projects on Cal State’s campuses, were sold in terms of one year to 30 years. The five-year issue was priced to pay an annualized yield of 3.19%. The yield was 4.24% on the 10-year issue and 5.46% on the 20-year.

Because those yields are exempt from federal and state income taxes for California residents, they’re equivalent to much higher yields on fully taxable bonds, depending on an investor’s tax bracket.

-- Tom Petruno