State Sells Its 1st Long-Term Bonds Since ’92 Budget Crisis

California on Wednesday sold its first long-term bonds since settling its 1992 budget crisis, and investor reception was generally favorable.

But to make the bonds more attractive, the brokerages selling them offered private insurance on some of the 13-year to 18-year issues--a first for California general obligation bonds.

The total bond offering was $1.3 billion in maturities ranging from one year to 30 years. The entire offering was bought by a group of brokerages led by Merrill Lynch, which guarantees that the state would pay an overall interest rate of 5.93%, lower than expected.

Merrill and other brokerages now have the responsibility of selling the bonds to the public.

Analysts say the yields should lure many individual Californians, who pay neither federal nor state income tax on the interest. For example, the five-year bonds yield 4.6%, which is equivalent to a 7.7% taxable bond (or bank CD) yield for investors in the top federal/state tax bracket of about 40%.

On 10-year bonds, the yield is 5.5%, equivalent to a 9.2% taxable yield in the top tax bracket.

California general obligation bonds are still considered high-quality, but the state lost the coveted triple-A rating last winter as economic woes mounted. Credit-rating services now rate the state one or two notches below triple-A.

Proceeds from Wednesday’s bond sale will mostly be used for school construction, creating about 13,000 jobs, the state says.