Tuesday, March 17, 2009

CIRM Watching Upcoming Bond Sales

The folks at the California stem cell agency will be keeping a weather eye on the bond market during the next couple of weeks as both the Golden State and Wisconsin move forward with their bids to sell more than $5 billion in bonds.

The agency depends on California state bonds for its operations and grants. And California has not sold any bonds since last June. That means that CIRM will run out of cash next fall unless it is successful in marketing about $200 million in bonds this year.

On Friday, California announced its plan to offer up $4 billion next week, the largest long term muni bond sale since October 2007, according to Bond Buyer. Fearing an overcrowded market, Wisconsin bumped up its $1.5 billion sale to this week.

CIRM Chairman Robert Klein, who came up with the plan for CIRM to privately market the bonds, will be watching both the Wisconsin and California sales for their interest rates and for the tenor of the market. Wisconsin has a better credit rating than California, which is the lowest of any state in the nation.

Placing state bonds privately is unusual, which creates uncertainty. Smooth sales this week and next would be a good sign for Klein.

He needs to move with some dispatch. More bad economic and state budget news surfaced on Friday with a forecast from the state Legislative Analyst that state revenues will fall $8 billion short of the assumptions in the budget passed last month in California.

One of those assumption is that a package of budget measures will be approved in May by voters. Initial polling shows considerable voter dissatisfaction with the state budget deal (55 percent negative). The respected Field Poll shows initial support for the measures but large numbers of undecided voters. Without passage of the measures, the state's revenue picture will turn decidedly bleak.

While Klein will be beating the bushes for bond buyers, state Treasurer Bill Lockyer has final say on sale of state bonds. Tom Dresslar, spokesman for Lockyer, told us in an email on Thursday,

"As far as I know, no final decision has been made on whether to sell the next stem cell bonds through a private placement or public offering. We may still opt for the latter. But, given the still-precarious condition of capital markets, and the CIRM's financial condition, it's nice maximize your financing options."
Late last month, we discussed the general framework of the CIRM bond sales with Dresslar. Here is what he told us,

"The Treasurer's Office will determine the structure, amount and timing of any sale. In making that determination, the office will consult with CIRM and set a course of action that best meshes the interests of CIRM and taxpayers. We have told CIRM we'll consider the private placement route, as long as they can find suitable investors.

"CIRM has the same ability to obtain loans from the Pooled Money Investment Account as any other GO (general obligation) bond program. The PMIA's governing board will meet soon to make decisions on when and to what extent it will thaw the freeze on PMIA loans imposed last Dec. 17. Assuming the freeze is lifted, CIRM could apply for loans along with all other GO bond programs."

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