California gets $1.5 billion loan from JPMorgan to repay IOUs, plans $1.5 billion RANs sale

By Sheri Kasprzak

New York, Aug. 27 - The state of California entered into a financing agreement Thursday with JPMorgan Chase & Co. that would help the troubled state repay some of the IOUs issued to vendors, individuals and local governments earlier this year.

JPMorgan agreed to lend the state $1.5 billion in short-term interim revenue anticipation notes at 3% interest. The state was paying 3.75% on the IOUs.

The agreement will allow the state to repay a portion of the $2.26 billion in IOUs beginning Sept. 4. The state plans to cease issuing the IOUs that day.

California will come to market in mid- to late-September with an offering of $1.5 billion in revenue anticipation notes to repay the JPMorgan loan, according to a statement from the treasurer's office.

"It's a step in the right direction," said one market insider when asked about the financing plan.

"They're far from getting their heads above water, but the interest rate is certainly better. At the end of the day, it's a government in trouble, even with the money [from JPMorgan]."

Meanwhile, the treasurer's office is carving away various state-sponsored programs to make its budget work. On Thursday, it was reported that Gov. Arnold Schwarzenegger has even suggested turning to online auction sites like eBay and Craigslist to earn money for the cash-starved state.

"The Controller's Office has determined, based on its stress testing of Department of Finance projections, that the state will need $10.5 billion to meet 2009-10 cash-flow requirements," read the treasurer's office statement.

"That number could go down to $7.8 billion if the legislature and governor enact measures to defer certain payments. The exact date for the September RAN sale has not been set, but the transaction will take place mid-month or later."

Starting Sept. 4, holders of the state's registered warrants may redeem them in person at the state treasurer's office. The office suggests that warrant holders who wish to redeem by mail send in their requests before Sept. 4.

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