California's Recovery Bonds Recover

California Recovery Bonds Recover.

Finally some good news out of the state with the nation’s largest economy, and we sorely need it.

Foreclosures in California have continually outpaced the rest of the country, in part due to the famed Silicon Valley where I was a stockbroker for some time. Fuelled by the dot com’s ‘irrational exuberance,’ nearly everyone was left sitting in a home they could no longer afford when the crash came in march of 2000 followed by the housing meltdown. Silicon Valley suddenly became an ugly place to live in.

Fast forward a few more years and the state is still suffering from the collapse of the construction and mortgage booms as well as a sharp drop in consumer spending. Moody’s has just stepped in and raised the rating on the statesRecovery Bonds from Baa to A1 which gives them a higher rating than the state’s general obligation credit which Moody’s has at a Baa1. Both credits have a stable outlook.

California’s 8 billion dollars of recovery bonds were upgraded after the state’s refinancing lowered the state’s debt-servicing costs. The new outlook reflects the states broad tax base and legal structure that keeps the special tax revenues separate from the state’s general fund, and therefore insulated from the state’s fiscal stress. So is this really good news or sophisticated legal paper shuffling?

So maybe the good news is not really good news, rather it is a new way to look at the old news which is all about the nation’s largest economy being the country’s biggest loser. I can’t deny though, that those holding the recovery bonds are going to be happy with the news.