JPMorgan Chase & Co. (JPM) has agreed to provide the State of California a short-term loan of $1.5 billion to allow the state to end its IOU program, the Los Angeles Times reported Tuesday, citing state officials.
The short-term loan provided by JPMorgan would allow the state to begin to repay government vendors and creditors on Sept. 4, earlier than the maturity date on the IOUs of Oct. 2.
The Times reported that the interest rate on the $1.5 billion loan has not been determined yet, but experts said the interest rate could be between 2% and 3%. JPMorgan would be repaid for the loan in late September, according to the Times, when the California government sells what’s known as Revenue Anticipation Notes that have a longer maturity schedule than the IOUs.
The Times said that JPMorgan’s reasoning for doing the short-term loan was primarily to get into the good graces of the state government, which is one of the largest bond issuers in the nation. JPMorgan also recently oversaw a major expansion into California after the bank bought Seattle-based Washington Mutual in a distressed sale during the height of the financial crisis last year.
The budget crisis and a political deadlock in California over the summer forced the state government to issue IOUs for the first time since the early 1990s.
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