This is definitely good news for the State... It should lead to upgrades by the 3 major rating agencies. Those rating upgrades will ultimately save California taxpayers millions of dollars in interest payments.
Past News ReleasesRSS
Ferndale, WA (PRWEB) July 9, 2009
Since Fitch downgraded California's general obligation bonds to near "junk bond" levels on July 6th, investors (already weary of the states fiscal crisis) began running for the exits. This mass exodus is causing the state's borrowing costs to skyrocket. But the State may have found a solution to get their commercial paper debt quickly upgraded by the major bureaus.
California commercial paper - which is ultra-short-term debt that generally matures in seven to 30 days - interest rates are currently at historic levels at a time when the state can ill afford it. For example, the annual yield on seven-day paper has risen from 3.30 percent on June 2nd to 8.50 percent on July 7th. By way of comparison, most other states pay investors less than a 1 percent yield for their commercial paper programs.
Many institutional investors like money market or mutual funds are unwilling to purchase California short-term debt due to concerns over the state's liquidity and/or low credit rating. The common concern is that if the state's credit rating falls further, the banks participating in the commercial paper program may have the legal right to back out of providing liquidity to investors. Most money market funds simply cannot risk having their assets "frozen" if liquidity dries up.
But Robert Afshar of RAA Capital believes that California will imminently unveil a savvy solution to allay liquidity fears over its commercial paper notes program. Once implemented, the astronomical rates that California currently pays to its investors will quickly come back down to earth.
According to Robert Afshar, California's general obligation commercial paper notes program has provisions that allow the State to unilaterally demand that the participating banks deliver to the state an irrevocable letter of credit. This letter of credit obligates the participating banks to make principal and interest payments for the $1.3 billion commercial paper notes program. Mr. Afshar believes this demand by the State upon the banks has already been made and will be implemented and officially announced within a week.
In effect this means that the liquidity banks now back the commercial paper notes program and investors are no longer in imminent danger of losing liquidity due to credit rating downgrades. It also means that commercial paper investors are less worried about California defaulting since the banks are responsible for paying the interest and principal.
Adds Robert Afshar, "This is definitely good news for the State... It should lead to upgrades by the 3 major rating agencies. Those rating upgrades will ultimately save California taxpayers millions of dollars in interest payments."
About Robert Afshar
After earning a Bachelor of Arts from University of California, Berkeley and a Juris Doctor from University of San Francisco's School of Law, Robert Afshar practiced corporate law. During his tenure as an attorney, Robert authored several books that empowered consumers to handle routine legal matters on their own, without incurring attorneys' fees.
In 1999, Robert founded LeadClick Media Inc., a pioneer in the Internet marketing and online lead generation space. Robert served as President and CEO of LeadClick since its inception. In November 2005, he sold the company to First American and First Advantage Corporation. The deal was valued at over $200 million.
Mr. Afshar, recently founded RAA Ventures. Located in Las Vegas, Nevada. RAA Ventures is an angel investor and venture capital fund dedicated to early and mid-stage investments in internet marketing and Web 2.0, social media companies.
# # #