CORRECT: Fitch Rates California's $7.5B Revenue Anticipation Warrants 'F1+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 14, 2002

(In a press release issued yesterday the call provisions were incorrect in the first paragraph. The amended release follows)

Fitch Ratings-New York-June 13, 2002: Fitch Ratings has assigned an 'F1+' rating to $7.5 billion state of California, 2002 revenue anticipation warrants (RAWs), for bids June 18. The RAWs will be in three series, $1,500,000,000 series A due Oct. 25, 2002, $3,000,000,000 series B due Nov. 27, 2002, and $3,000,000,000 series C due Jan. 30, 2003. The series A and B warrants will not be callable; series C will be callable beginning Nov. 27, 2002 on 15 days' notice at par, subject to the prior payment of series A and B warrants. Proceeds will provide operating cash for the state.

The warrants are secured by and payable from unapplied money in the general fund, including transfers and internal borrowings as permitted by law, subject to the prior application to education, principal and interest on general obligation bonds and reimbursements and payments required by law. They are not general obligations of the state. In addition, the state controller has entered into standby refunding warrant bid agreements with six institutions (Bank of America, Goldman Sachs, Merrill Lynch, Morgan Stanley, Salomon Smith Barney, UBS PaineWebber) totaling $1,700,000,000 for series A and $3,400,000,000 each for series B and C.

The rating primarily reflects the refunding bid agreements which would allow the state to retain warrant proceeds until May 28, 2003, and assure repayment of these warrants in the absence of sufficient cash available to the general fund at the maturity dates. While the general fund cash flow projections indicate that coverage from unused borrowable resources for each RAW maturity is ample, ranging from 3 times (x) to 7x, the cash flow statements assume that in October, the general fund will receive $6.6 billion from the sale of power revenue bonds for reimbursement for 2001 power purchases plus interest and that $7 billion revenue anticipation notes (RANs) will be issued. Coverage is still ample if either of the receipts is delayed, but without both, cash is not available. Furthermore, it is assumed that in January 2003, some $2.2 billion will be received from completion of a tobacco securitization. There is coverage without the securitization, but the $4.7 billion balance that would remain after RAW repayment includes receipt of both the RANs and the power purchase reimbursement. The cash flow is based on the governor's recommended budget, as revised in May, and will be altered by the final budget.

California's revenue has dropped sharply this year, both in comparison to estimates and to actual 2000-01 results. The weakness is primarily the business taxes and in the personal income tax, the latter severely affected by a steep decline in capital gains, stock option, etc., income. A two-year shortfall of some $23 billion has been addressed in the executive budget through expenditure cuts, tax increases and changes and $4.5 billion derived from a tobacco securitization. The legislature is currently debating the budget.