LOS ANGELES -- California this week plans to sell $4.1 billion of revenue anticipation notes that include some innovations for the state, such as March maturities and $1 billion of variable-rate securities.

The sale, California's largest note deal ever, is slightly smaller than the municipal market's biggest note issues, which were seized at $4.3 billion and sold by New York in 1984 and 1985.

Pricing is planned Tuesday through a group led by Lehman

In a separate development Friday, Moody's Investors Service and Fitch Investors Service confirmed California's triple-A general obligation bond rating and assigned the notes a top ranking.

California encountered its worst budget deficit in history in the fiscal year that began July 1. Gov. Pete Wilson and legislators finally agreed in mid-July on a massive package of tax increases and spending cuts to eliminate the gap.

"We balanced that budget and solved the problem," Kathleen Brown, the state treasurer, said last week in Los Angeles in one of a series of public meetings with investors and underwriters.

She said the budget was "not balanced with smoke and mirrors," adding that any one-shot fixes that were used -- such as taking excess funds from a state retirement system -- were appropriate because part of the deficit involved a "one-shot cyclical imbalance" caused by an economic downturn.

Ms. Brown also stressed that state leaders approved structural budget reforms and set aside $1.2 billion in an economic uncertainty reserve.

One of the more notable adjustments in California's note deal this year is the structuring. Ms. Brown called it "a transition year" because of the changes.

Generally, California has sold fixed-rate notes, all of which matured toward the end of June. This year, however, the state is selling $1 billion of fixed-rate notes that mature March 31, 1992, and $500 million each of daily variable and weekly variable notes that mature next March 17. The state also has $2.1 billion of notes maturing on June 30, 1992.

California expects interest rate savings by not having such a huge glut of notes maturing all at once in June, Ms. Brown said.

Market participants said fewer notes mature in March, a factor that can help entice money market funds that seek staggered maturies for their investments.

A new California law, signed last week, also gives more flexibility in structuring the note maturity. Under prior law, a note issue could not be paid later than the last day of the fiscal year in which the note has been issued. Accordingly, California notes generally mature on about June 30.

By contrast, the new law lets California do note borrowings that stretch across fiscal years.

Ms. Brown said Thursday that she favors switching to a selling cycle that markets in October. That would allow the state to "get out of the way of all the [note] issues" sold in California by localities, which creates a market jam in June, she said.

The state also fears that it loses "rollover" investors -- those who reinvest old note proceeds into a new issue -- because of a lag under the current system between the late June maturity and the August sale date. A 12-month maturity could allow the state to pay off the old notes and close a new issue almost simultaneously, thereby capturing rollover investors easier.

Ms. Brown said her office will study possible options for the upcoming March maturities, including rolling them over to June or October. Ms. Brown also is emphasizing retail sales in this year's deal in the hope that attracting those investors will also help lower interest rates.

She said that retail orders will be given preferential treatment within each firm, and that each manager also will receive retain retention they can count on during the presale period.

Ms. Brown expressed pleasure with the presale effort through mid-day Thursday, noting that it had reached $800 million.

On Friday, the state's notes received the highest rating of MIG-1 from Moody's and F-1-plus from Fitch. A Standard & Poor's rating was not available.

Moody's and Fitch also confirmed their triple-A rating for California's GOs. Both agencies cited the state's extensive resources and low debt ratio in confirming the top ratings.

Ms. Brown said she "feels quite positive about the triple-A quality of our budget." Standard & Poor's has the state's GOs on CreditWatch with negative implications.

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