California and JPMorgan Chase & Co. closed Thursday on a $1.5 billion note sale that will let the fiscally ailing state end a program under which it issued about $2.2 billion of IOUs to vendors.

The state will start paying off the IOUs Sept. 4 and will stop issuing them the same day, according to Treasurer Bill Lockyer.

The cash-hungry state will repay the JPMorgan Chase loan after it sells billions more of short-term notes in September to meet its fiscal 2010 cash-flow needs.

Controller John Chiang has determined that the nation's most populous state will need $10.5 billion to meet those requirements. This amount could decline to $7.8 billion if the Legislature and Gov. Arnold Schwarzenegger approve measures to defer certain payments.

California will pay JPMorgan Chase 3% interest on the $1.5 billion of interim notes. It will not pay any fees. The state is paying 3.75% interest on the IOUs.

The date for the September note sale has not been set, but the transaction will take place at mid-month or later, Lockyer said.

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