Massachusetts Water Agency to Issue $345M Next Week

The Massachusetts Water Pollution Abatement Trust Tuesday will sell $345 million of new-money debt on behalf of 75 borrowers for water infrastructure projects throughout the state. JPMorgan will kick off what officials anticipate will be an active retail period on Tuesday, with institutional sales beginning on Wednesday. Lamont Financial Services Corp. is financial adviser and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is bond counsel. The 2007 Series 13, fixed-rate bonds will not be enhanced as the credit carries natural triple-A ratings from Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s. The trust tends to sell $300 million or more each year in its pooled loan program. Last year, when the MWPAT sold $431 million of new-money bonds, retail investors absorbed more than $100 million of the debt. “We’re hoping for the same result this year,” said Scott Jordan, executive director for the trust. “We think that as a natural triple-A issuer in a market that doesn’t have a lot of triple-A bonds in it and given the volatility surrounding the insurance market we think they’ll be a lot of appetite for natural triple-A. So, we’ve always been very retail friendly.” Jordan said if retail interest is great enough, the trust is willing to decrease the two term bonds in the transaction to increase the size of its serial bonds. The preliminary official statement calls for serial bonds from 2008 through 2027, with two term bonds in 2032 and 2037 totalling $31 million and $36.5 million, respectively. While the trust in the past has sold variable-rate refunding bonds that it swaps into a synthetic fixed-rate mode, this week’s new money sale will include only fixed-rate debt. Officials did look into using derivatives for this sale, but decided the trust would receive lower borrowing costs by selling traditional fixed rate bonds, according to Jordan. Bond proceeds will help support clean water initiatives throughout the Bay State for local governments and municipal borrowers. The pool’s largest recipient is the Massachusetts Water Resources Authority, which will receive $81.7 million for sewer and drinking water projects from this week’s sale. The MWRA does issue debt on its own, but participates in the trust’s yearly loan pool to take advantage of the fixed 2% rate that MWPAT borrowers pay. The second-largest borrower is the island community of Nantucket, which will receive $44.6 million to help support a new water infrastructure development in the area. “They’re substantial in this issue, but they have a single project that they’re working on,” Jordan said. “They’re building a wastewater treatment plant and it is unlikely that they will be a substantial repeat borrower and they’re a relatively small town.” All but one of this year’s group of 75 borrowers have participated in the trust’s pooled loan program before, with the Adams Fire District of Berkshire County, in western Massachusetts, joining the pool for the first time with a $2.5 million loan. The trust currently has more than 270 borrowers within its portfolio. The trust’s last new-money sale, 2006 Series 12, priced on Nov. 22, 2006 with bonds maturing from 2007 to 2036 with yields ranging from 3.45% with a 3.5% coupon in 2008 to 4.45% with a 4.375% coupon in 2036. Among those bonds that carried a 5% coupon, debt maturing in 2012 was priced to offer yields closest to that day’s Municipal Market Data’s triple-A yield curve, with yields five basis points higher. Bonds maturing in 2018 and 2019 were widest to the spread with yields 11 basis points higher. Payments from municipalities and local governments, along with federal and state allocations help to fund the trust. The MWPAT received $36 million for its clean water program and another $26 million for its drinking water program for the current fiscal year through federal and state aid. That amount could decrease in the future if the federal government continues to scale back on funding clean water initiatives, a factor that Moody’s notes as a challenge to the credit. “[President Bush] over the last several years proposed fairly dramatic cuts to the program that Congress has restored partially,” Jordan said. “Our expectation next year is that we would receive the same amount as this year, but there’s a fair amount of volatility around that based on what happens in Congress.”