SAN FRANCISCO (Reuters) - California Gov. Arnold Schwarzenegger has told U.S. Treasury Secretary Henry Paulson that the most populous U.S. state may need the federal government to buy $7 billion of debt the state is unable to sell due to weak credit markets- and that California may not be alone.
The $7 billion issue of revenue anticipation notes would raise cash to tide California over the near term until it gets expected revenues, but the plan to sell the debt is in peril because the municipal debt market is frozen, State Treasurer Bill Lockyer said earlier this week.
“This is not a normal year,” said Lockyer spokesman Tom Dresslar on Friday, adding that the state was preparing the issue but that markets were in turmoil: “The paralysis lingers.”
The municipal bond market, where California hopes to sell its short-term notes, has all but frozen up over the past three weeks as buyers have been scarce and tax-exempt yields have skyrocketed. Few deals have been priced, while scores of issuers such as states, hospitals, school districts and others, have postponed their bond sales awaiting a market turn around.
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