Loan will let Calif. end IOU program early

SACRAMENTO, Aug. 18 (UPI) -- JPMorgan & Chase Co. has agreed to lend California $1.5 billion, allowing the state to end its IOU program ahead of schedule, state officials said.

The state, which faced a $26 billion revenue gap before reaching a budget agreement last month, has been using IOUs since July 2 to pay many vendors and creditors. The IOUs were scheduled to mature Oct. 2 but the loan announced Tuesday will allow the state to end the program a month earlier, the Los Angeles Times reported.

Controller John Chiang said last week the budget adopted in Sacramento includes sufficient spending cuts to redeem the IOUs if the state could arrange a $1.5 billion loan by Aug. 28.

Tom Dressler, a spokesman for California Treasurer Bill Lockyer, told the newspaper Lockyer has been talking with banks about such a loan in recent weeks and JPMorgan was the first to respond with a reasonable proposal.

The JPMorgan loan is to be repaid by late September, the Times said. At that time, California officials plan to sell $10.5 billion in securities scheduled to mature next spring.

Those notes are expected to sell well, the newspaper said, because they will offer a greater return than other short-term instruments.