Head West, Big Bank: Inside J.P. Morgan’s California Loan - Deal Journal - WSJ
J.P. Morgan Chase to the rescue. The New York bank has agreed to loan the struggling state of California $1.5 billion to generate some badly needed operating cash. The loan agreement is meant to tide the state over until it can get a deal for a much larger $10.5 billion loan which should help the state’s cash needs through 2010.awesome. now we've privatized an entire state!
There are some interesting elements about the J.P. Morgan’s loan deal. The bank agreed to the loan without any collateral from California, which has seen its credit badly bruised by a months-long fiscal crisis. Second, the loan will enable the state to stop issuing IOU’s to vendors and start paying them in cash. But one reason the IOUs became untenable was because banks, such as J.P. Morgan, Citigroup and Bank of America, stopped honoring the IOUs and advancing the vendors cash. The banks said they did this because they didn’t want to prolong the budgetary showdown in the legislature that was at the heart of the state’s cash problems.
J.P. Morgan says it loaned the money to California as part of its “social mission” to help a struggling state. Of course, the bank also has a keen interest in building its business with the nation’s largest state. Late Tuesday, California picked (Surprise. Surprise) J.P. Morgan as senior book runner to sell the $10.5 billion in “revenue anticipation notes,” known as a RAN. Citigroup and E.J. De La Rosa & Co., a small California investment bank, are also managing the deal.
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