Wednesday, January 13, 2010

More on S&P's Downgrade of California Debt

In addition to the downgrade S&P maintained its negative outlook on Cali's $63.9 billion in general obligation debt, indicating more downgrades are possible.

The state's previous rating was A, already the lowest in the nation for a state government, an S&P spokeswoman said, according to Market Watch. S&P last downgraded California last February.

"Relative to the past fiscal year, uncertain assumptions for major portions of the budget balancing proposal make the state's credit more susceptible to adverse economic or other developments," S&P analysts said in a report. "The combination of fewer unconventional nonrecurring potential budget solutions, reliance on what we consider to be extraordinary federal cooperation, voter approval, and difficulty in achieving the legislative agreement to make deep cuts as proposed could impede meaningful and timely progress on a budget agreement."

Spreads on five-year California credit-default swaps rose to 275 basis points, up 5 basis points for the day, said PIMCO municipal bond analyst David Blair as quoted by MW. Higher spreads indicate sellers of CDS, a type of default insurance, are charging more to provide protection.

Yields on 30-year taxable Build America Bonds issued by California rose to 304 basis points above Treasurys , or 5 basis points higher. That amounts to a roughly 7.75% yield.


  1. Bond ratings are not forward-looking or CA would never have gotten an A to begin with and they wouldn't bother this dog-and-pony-show of constant downgrades as CA heads for bankruptcy on an express light rail system of profligacy it... guess what... can't afford!

  2. What the state legislature couldn't do, the market will do for them: turn off the spigot.

    The free market will be the solution. The threat of the market stopping the money flow will work wonders. Just watch.

  3. I live in CA....and I'm surrounded by idiots (they voted in Arnold,) out of touch liberals (who never saw a re-distribution plan they didn't like,) and apathetic-slack-jawed-dope-smokers......this bond downgrade means: more taxes on EVERYTHING.......ya, they're turning off the spigot, but they're going to walk over to my house to grab my hose.

  4. I'm so happy I left California. :)