06/04/2004: 
Stuff That Doesn't Suck
California's Improving Credit Profile
from undisclosed source
referred by alert reader maxpower
#Recent Upgrade Follows Improved Liquidity
Although budgetary risks remain, California's credit ratings have begun to rise.
We believe near term upgrades are warranted; the state's BBB-grade ratings were only relevant in the context of now addressed concerns over the year-end funding of $14 billion in short-term debt maturities.
#Additional Upgrades Should Follow in the Medium Term
Like many other states and major municipalities, California continues to face a large structural gap between revenues and expenses. The state's current ratings, however, are so much lower than normal state rating ranges, that we believe further upgrades are likely in the medium term. In particular, we note an improving local economy and measured political progress toward budgetary balance.
#Relative Value Should Improve As Well
California bond relative value should rise with the state's improving credit quality and, in the short term, supply dynamics. We expect that, in the medium term, yields could approach pre-crisis levels of 10-15 basis points below the MMD insured scale. Downside relative value risks are limited in this period, noting the state's positive credit momentum.
