California Bond Rating Cut by Moody's Over Stalemate

[charrison]

linkage

Dec. 9 (Bloomberg) -- California, the U.S. state with the highest borrowing costs, had its credit rating on $30 billion of bonds cut one level by Moody's Investors Service after lawmakers rejected Governor Arnold Schwarzenegger's spending cap.

Moody's downgraded California's general obligation bonds to Baa1, the third lowest of 10 investment grades, from A3. After the third ratings cut in 10 months, California is rated the same by Moody's as Puerto Rico and the District of Columbia, as well as Lithuania, Malaysia, Thailand and Chile.

California will incur a ``very substantial fiscal deficit over the next 18 months'' because of Schwarzenegger's reversal of a car registration tax increase, the ratings company said in a statement. The state's shortfall through June 2005 rises by $7.5 billion without the added car tax, Moody's said.

``They're in an extreme situation already. What do you expect?'' said Stephen Bauer, who helps oversee $2 billion in municipal bonds for a unit of Safeco Corp. in Seattle, including a California fun

 

[SuperTool]

That's what happens when you let deficits run amok. Is whitehouse paying attention?

 

[DealMonkey]

Great. So Ahnuld's little plan to borrow $10-15 Bil will cost us even more. Perfect.

 

[glenn1]

Great. So Ahnuld's little plan to borrow $10-15 Bil will cost us even more. Perfect.

If you really want to bat the cycle, just let the legislature fight it out for another few months, then you can have another rating cut under your belts and pay a higher coupon on the bonds as well once the Fed gets moving on raising rates.

 

[charrison]

Originally posted by: DealMonkey
Great. So Ahnuld's little plan to borrow $10-15 Bil will cost us even more. Perfect.

It sounds more like the legislature needs to wake up.

 

[DealMonkey]

Originally posted by: charrison

Originally posted by: DealMonkey
Great. So Ahnuld's little plan to borrow $10-15 Bil will cost us even more. Perfect.

It sounds more like the legislature needs to wake up.

Wait, so you're blaming the legislature for the rate cut?

California will incur a ``very substantial fiscal deficit over the next 18 months'' because of Schwarzenegger's reversal of a car registration tax increase, the ratings company said in a statement. The state's shortfall through June 2005 rises by $7.5 billion without the added car tax, Moody's said.

 

[charrison]

Originally posted by: DealMonkey

Originally posted by: charrison

Originally posted by: DealMonkey
Great. So Ahnuld's little plan to borrow $10-15 Bil will cost us even more. Perfect.

It sounds more like the legislature needs to wake up.

Wait, so you're blaming the legislature for the rate cut?

California will incur a ``very substantial fiscal deficit over the next 18 months'' because of Schwarzenegger's reversal of a car registration tax increase, the ratings company said in a statement. The state's shortfall through June 2005 rises by $7.5 billion without the added car tax, Moody's said.

Removal of the car tax is one reason he is there. It appears the people wanted that removed.

 

[glenn1]

Great. So Ahnuld's little plan to borrow $10-15 Bil will cost us even more. Perfect.
--------------------------------------------------------------------------------

It sounds more like the legislature needs to wake up.

One thing's for sure, it's gonna be one helluva takedown charged by the syndicate having to move $15B worth of California barely investment grade paper in what's not going to be an accomodative interest rate environment for much longer.

 

[SuperTool]

Originally posted by: charrison

Originally posted by: DealMonkey

Originally posted by: charrison

Originally posted by: DealMonkey
Great. So Ahnuld's little plan to borrow $10-15 Bil will cost us even more. Perfect.

It sounds more like the legislature needs to wake up.

Wait, so you're blaming the legislature for the rate cut?

California will incur a ``very substantial fiscal deficit over the next 18 months'' because of Schwarzenegger's reversal of a car registration tax increase, the ratings company said in a statement. The state's shortfall through June 2005 rises by $7.5 billion without the added car tax, Moody's said.

Removal of the car tax is one reason he is there. It appears the people wanted that removed.

And that's what they got. Consequences be damned.

 

[charrison]

Originally posted by: SuperTool

Originally posted by: charrison

Originally posted by: DealMonkey

Originally posted by: charrison

Originally posted by: DealMonkey
Great. So Ahnuld's little plan to borrow $10-15 Bil will cost us even more. Perfect.

It sounds more like the legislature needs to wake up.

Wait, so you're blaming the legislature for the rate cut?

California will incur a ``very substantial fiscal deficit over the next 18 months'' because of Schwarzenegger's reversal of a car registration tax increase, the ratings company said in a statement. The state's shortfall through June 2005 rises by $7.5 billion without the added car tax, Moody's said.

Removal of the car tax is one reason he is there. It appears the people wanted that removed.

And that's what they got. Consequences be damned.

and the leg has no responsability in doing what the people and cutting spending to cover the tax the people did not want?

 

[DealMonkey]

Wait, I thought this thread was about CA's bond rating being cut? Why was it cut? Because Arnold cut the car tax upon taking office. Let's give credit where credit it due. This is not what I call prudent fiscal management for an incoming gov.

 

[LunarRay]

Well that just increases the risk assumption and the interest rate demanded and the debt service on the the bonds that the Governor wishes to float. Not that big a deal. What is the interest difference on 15b from fourth risky to third risky.. 1/2 a percent..per annum max. 7.5million$ chicken feed.. now if it goes to junk then no one will buy them and then we'll be in deep do do.. We'll have to raise tax on the remaining workers and businesses. And, maybe just maybe cut some programs.
I propose Mental Health, Welfare, Schools and those other needed services.

 

[gsaldivar]

Originally posted by: DealMonkey
Wait, I thought this thread was about CA's bond rating being cut? Why was it cut? Because Arnold cut the car tax upon taking office. Let's give credit where credit it due. This is not what I call prudent fiscal management for an incoming gov.

Once again Dealmonkey . . .

The "stalemate" in the story refers to the CA Legislature's failure to pass Schwarzenegger's proposed $15b bond sale.

California ... had its credit rating on $30 billion of bonds cut one level by Moody's Investors Service after lawmakers rejected Governor Arnold Schwarzenegger's spending cap.

Without the bond sale proposed by Schwarzenegger, the state may run out of cash in six months.

The deficit created by the car tax, is half the size of the revenue from the bond sale, and will take eighteen months to be fully realized.

 

[NesuD]

Originally posted by: DealMonkey
Wait, I thought this thread was about CA's bond rating being cut? Why was it cut? Because Arnold cut the car tax upon taking office. Let's give credit where credit it due. This is not what I call prudent fiscal management for an incoming gov.

Are you stupid or what?

Dec. 9 (Bloomberg) -- California, the U.S. state with the highest borrowing costs, had its credit rating on $30 billion of bonds cut one level by Moody's Investors Service after lawmakers rejected Governor Arnold Schwarzenegger's spending cap.

 

[BaliBabyDoc]

Actually the true whole is even bigger b/c Gov. Schwa is witholding part of the car tax from localities so he can issue refunds to people who paid the higher car tax. Localities were already cash-strapped to provide vital services.

 

[DealMonkey]

Okay, I guess I misunderstood what Moodys was saying. So, it's both a product of both the rejecting of the spending caps (legislature) and the repeal of the car tax (Arnold).