California is planning to sell $110 million of veterans general obligation bonds in a competitive offering Thursday.

The California Department of Veterans Affairs will use proceeds to finance and refinance mortgage loans made under its Farm and Home Purchase Program.

Under the program, the department acquires residential property to be sold to eligible veterans under contracts of purchase. The acquisition of property is principally financed with proceeds from veterans GO bonds, along with revenue bonds and other money available from the program's 1943 Fund.

The fund, which was established by the state treasury in 1943 as the principal fund used by the program, posted a net operating profit of $8.5 million in fiscal 2014, according to Standard & Poor's. This was the first profit reported since fiscal 2007 and an improvement over a $4.1 million loss the prior year.

Standard & Poor's revised its outlook on the CalVet bonds to positive from stable and affirmed its AA rating. The revised outlook is based on an expectation that the bonds will perform well and the strong asset-to-liability position.

"The outlook also reflects CalVet's improved parity position and return to profitability after a number of years of recurring operating losses," Standard & Poor's said in its credit report. "Further, we believe that CalVet will maintain its profitability levels in the near future, by managing its expenses and increasing loan production to meet demand."

Moody's Investors Service assigned an equivalent Aa2 rating, with a stable outlook, based on the strength of the program, improved mortgage loans performance, and the pledge of the state's full faith and credit. Moody's recently upgraded California to Aa2 from A1.

The agency said that reporting from CalVet shows a significant decline in delinquency and foreclosure rates. Analysts expect the downward trend, management's implementation of cost reduction measures, and signs of stabilization in single-family housing valuations with the state will improve performance.

Fitch Ratings affirmed its slightly lower rating of AA-minus, but revised its outlook to stable from negative. Analysts said the stable outlook reflects the program's operation gains after almost six consecutive years of losses.

"A change in unemployment or employment levels and housing market trends within the state could result in operating results volatility for the Department and could change the rating," Fitch said.

The bonds are first payable from the 1943 Fund, and to the extent that those funds are insufficient, from California's general fund.

Maturities range from 2016 through 2020, and 2031 through 2035.

Hawkins Delafield & Wood LLP is bond counsel and Public Resources Advisory Group is financial advisor.

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