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California plans $1.9 bln GO sale for next week

(Reuters) – California will come to market with $1.9 billion in general obligation bonds, in one of the largest deals scheduled for next week, and plans to use most of the money to refinance other debt.

Standard & Poor’s Ratings Services upgraded California’s GO debt last month to AA-, another sign of the state’s financial recovery. S&P’s lowest rating of California’s GO debt came in 2003 at BBB, two notches above speculative grade, or junk.

California, the world’s eighth-largest economy, has been enjoying strong revenue, aided by temporary tax increases, according to S&P. Recurring spending cuts in recent budgets have helped eliminate the state’s structural imbalance, according to Fitch Ratings, which rated the upcoming sale A+.

“We have to take advantage of our recent credit upgrades,” said John Chiang, California state treasurer, in a prepared statement. “Not only are we investing in vital projects, we are also saving taxpayers’ dollars by refinancing past debt by obtaining a lower interest rate, which will save the state millions of dollars.”

The state will use $550 million of the money for permanent financing of capital facilities.

The planned $750 million Puerto Rico Aqueduct and Sewer Authority (PRASA) sale also hangs in the balance, and may price as soon as Monday, according to data company IPREO. The deal, the U.S. commonwealth’s first in the public markets since it defaulted, did not price Thursday as expected.

Puerto Rico earlier this month failed to make a full payment due on bonds sold by its Public Finance Corp.

New Jersey’s sale of $2.2 billion in bonds is the largest on next week’s estimated $10.3 billion calendar of competitive and negotiated municipal bond and note sales.

The state will use the money for school facilities projects and for refunding, according to bond documents. The issue may benefit from Fitch’s rating outlook improvement to stable, according to a market comment from Alan Schankel of Janney Capital Markets. (Reporting by Jessica DiNapoli; Editing by Steve Orlofsky)

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