Hyperlink: http://dailynews.yahoo.com/h/ap/20010628/us/power_bonds_1.html

Thursday June 28 7:02 PM ET

Watchdog Calls Calif. Outlook Murky

By STEVE LAWRENCE, Associated Press Writer Copyright Associated Press, Fair Use for Education and Research Only

SACRAMENTO, Calif. (AP) - A New York bond-rating house took California off its credit watch list but said the state's long-term financial picture remains murky because of its electricity purchases.

Standard & Poor's said a recent $4.3 billion loan to help the state buy electricity had eased pressure on its treasury ``at least for the time being.''

The credit watch is a signal to potential bond buyers that the soundness of the state's bonds could change.

Standard & Poor's placed the state on the watch ``with negative implications'' on Jan. 19 after California began buying power for customers of its financially strapped, investor-owned utilities.

In April, Standard & Poor's dropped the state's credit rating from AA to A-plus on voter-approved general obligation bonds, the state's primary borrowing mechanism. Dropping the rating typically means the state will pay more in interest when it sells bonds.

A Standard & Poor's analyst, David Hitchcock, said the A-plus rating was on the ``lower side'' for a state, ``but it's still a good rating.''

The bond house said Thursday that it was maintaining the A-plus rating on general obligation bonds and an A rating on another form of borrowing, lease revenue bonds, adding that the state's long-term outlook ``remains negative.''

The lack of improvement in the ratings ``reflects the state's continued rapid level of spending for power purchases. The only thing that has changed is that it is using borrowed money instead of its own,'' Standard & Poor's said in a statement.

It said the state's plans to sell about $13 billion in revenue bonds later this summer to cover energy purchases still face ``several hurdles,'' and that failure to sell the bonds would create a large budget deficit.

Asked if Standard & Poor's was seriously concerned that the bonds would not sell, Hitchcock said, ``I'm not sure how you define serious, but there definitely is concern there.''

The company also warned that the state's economy could be hampered ``for years to come'' by the power purchases.

State Treasurer Phil Angelides and a spokesman for Gov. Gray Davis said the Standard & Poor's announcement was a sign the state's situation was improving.

``It's further evidence that we are turning the corner and there's renewed confidence in the governor's energy policy,'' said Davis' press secretary, Steve Maviglio.

-- Robert Riggs (rxr.999@worldnet.att.net), June 29, 2001