LOS ANGELES -- Los Angeles County plans today to sell $1.3 billion of tax and revenue anticipation notes, edging into the market ahead of the mammoth sale of New York State notes planned for next week.
"We think it's better now than later" to sell Los Angeles County notes because of the huge supply of pending short-term deals, both in California and out of state, said Robert J. Larkins, a vice president of Morgan Stanley & Co., senior manager on the county issue.
The county's deal, which is the biggest note issue in its history, had tentatively been set for pricing on June 19, the same day on which New York plans to price a $3.9 billion revenue anticipation note issue.
Although the New York deal "was a major factor" influencing the decision to price Los Angeles County notes this week, Mr. Larkins also noted that there is "a fair amount of other California supply" competing for investors.
Sharon Yonashiro, manager of public finance for the county, said, "It was better to revise our plan and go a little earlier," especially because California itself is also expected to launch a large interim borrowing once its budget is set in the next few weeks.
Like many other public entities, Los Angeles County has faced a budget pinch this year. But its problems are nowhere near those of major borrowers with highly publicized problems, such as New York City and State -- so the county is still able to put its best foot forward in the credit markets.
The two New Yorks, for example, have paid a price with rising yields in the tax-exempt market. By contrast, Los Angeles County is expected to lock in short-term rates commensurates with its top-grade ratings.
In comments about the note transaction, Moody's Investors Service said the county's proposed $11.1 billions budget for fiscal 1992, which begins July 1, "reflects a continuation of belt-tightening policies and narrow financial margins." The agency noted that further budget adjustments may be needed, but "short-term security remains strong."
Moody's rates the county's upcoming note issue MIG 1, and Standard & Poor's Corp. rates the notes SP1-plus.
Market participants expect the county's notes to offer a yield of about 4.5%, with a coupon of 5%. A much smaller issue of Contra Costa County notes was reoffered at an aggressive 4 40% this week, while a Santa Clara County note issue came at 4.45%.
Los Angeles County's notes will be issued as one-year, fixed-rate notes, dated July 1, 1991, and due July 1, 1992.
County officials are studying teh possibility of tying in derivative products, such as interest rate swaps, with the note transaction. But there are no plans to execute contracts right away because officials just want "to sell the notes and get that behind us" first, Ms. Yonashiro said.
In a written presentation to Moody's, the county said the proposed budget "is conservatively premised upon a continuation of the recession, and no real economic recovery until the beginning of fiscal year 1992-93."
It also observed in the preliminary official statement that California faces a projected budget deficit of $14.3 billion, but the county added that it cannot predict the outcome of the state's final budget on county finances.
"Although the county derives a substantial percentage of its annual revenues from the state, the county believes that the state budget crisis will not materially impair the county's ability to repay the notes because the county derives a significant percentage of its annual revenues" from property taxes and other sources that are not under state control, according to the prospectus.
The county estimates that almost $3.8 billion of general fund unrestricted revenues are available to retire the $1.3 billion note issue. This year's deal is the county's largest note issue ever, surpassing its previous record by $200 million.
To balance California's budget, state officials also are contemplating a major transfer of health and other programs to counties, along with new revenue sources to finance their operation.
Los Angeles County officials believe the program realignment will have no real budgetary impact as long as it is revenue neutral, a point that is key to getting county support for the change. State officials are leaning toward financing the realigned programs with increased vehicle license fees and a permanent half-cent sales tax increase for counties.