California's Debt: Scenarios for the State in 2011

On January 18, 2011, the original article asked, “Will the State deliver cash or warrants on its revenue anticipation notes maturing or issued in 2011? Benchmark Bond Ratings puts the probability of note default, or payment in other than cash, at 10%. That is a protection margin for investors we describe as 'Thin.' Current yields and the public rating companies suggest risk is much lower.”

March 31, The Bond Buyer reported: "California Notes in Question - Collapse of Budget Talks Hinders Plans." The report cites S&P as saying, “If the state is unable to enact a budget prior to the start of the fiscal year on July 1, we expect its cash-flow borrowing options to be complicated because it will be precluded from publicly issuing revenue anticipation notes,” Standard & Poor’s said.

“Extraordinary cash management actions such as certain payment deferrals or IOUs might in our view again prove critical to the state’s credit level if fiscal 2012 were to begin without a budget in place,” according to the rating agency.

We are reducing our protection margin rating on the notes to “Less Than Thin,” a 25% probability of monetary default up from 10% in January.

Read the rest here.