- Andrew Napolitano
The State Treasurer’s Office announced that the Commonwealth successfully completed the sale of more than $1 billion of refunding bonds this week in two separate bond issuances that will generate almost $234 million in gross debt service savings.
On Monday, Bank of America Merrill Lynch (“BofAML”) priced the Commonwealths' (Aa1/AA/AA+) $858 million of taxable Series 2019D general obligation refunding bonds. The Preliminary Official Statement was initially sized with a par amount of $441 million but that was increased to $858 million during the order period due to a continued lower movement in interest rates and high investor demand, which led to increased savings. The Taxable Bonds were structured with two index-eligible term bonds maturing in years 2039 and 2043, designed specifically to appeal to as many new investors as possible and provided increased liquidity. With international yields in many countries becoming negative, the transaction provided a good credit diversification opportunity for investors – resulting in over 32 different investors participating in the sale and allowing BofAML to lower yields by 5 bps for the shorter duration term bond. Final pricing results were +65 basis points (bps) and +80 bps spread to the 30-year UST on the 2039 and 2043 maturities, respectively.
"The Commonwealth was able to take advantage of historically low interest rates and robust investor demand to advance refund bonds in the taxable market. The taxable advance refunding generated present value savings in excess of 17% and locked in long-term financing at attractive cost of funds,” said Treasurer Deborah Goldberg. “This refinancing also allowed the Commonwealth to diversify its investor base by attracting several new institutional investors."
“Tax reform eliminated our ability to issue tax exempt advance refunding bonds, thereby eliminating some flexibility in the managing of its outstanding debt portfolio. The recent continued improvement in US Treasury rates and taxable credit spreads across the curve provided the Commonwealth with an attractive opportunity to advance refund on a taxable basis a portion of the bonds callable in year 2021,” said Sue Perez, Deputy Treasurer for Debt Management. “We were already scheduled to come to market with a tax-exempt new money and refunding financings; thus, all required disclosure for a capital markets offering was ready for investor distribution. In working with our senior manager, BofAML, the Commonwealth was able to work quickly to take advantage of this unique opportunity. We thank BofAML and the working group, our counsel and financial advisors, for their seamless execution of this transaction on such an accelerated timeline.”
On Tuesday, Massachusetts (Aa1/AA/AA+) sold $189.6 million of Series 2019E tax-exempt GO refunding bonds. Goldman Sachs won the bonds with a true interest cost (TIC) of 1.2539%. The bonds mature from 2020-2027, all maturities had 3% coupons and yields ranging from 1.03% in 2020 to 1.34% in 2027. This current refunding generated present value savings in excess of 9.4%.
The Commonwealth will be in the market again next week with a sale of $600 million new money tax-exempt general obligation bonds led by senior manager Morgan Stanley. The retail order period will be on Wednesday, September 4th followed by institutional pricing on Thursday, September 5th.
For more information on the upcoming bond sale, please visit buymassbonds.com.