Massachusetts plans a sale of $400 million of general obligation bonds by competitive bid on Tuesday. It is the commonwealth’s only new-money issuance for the second quarter of fiscal 2012, according to a representative for Treasurer Steven Grossman.
There is no retail order period for the sale of consolidated loan Series 2011E bonds. They will mature from 2015 to 2027, according to a preliminary official statement.
The bonds are exempt from federal and Massachusetts personal income taxes.
Fitch Ratings and Standard & Poor’s rate the bonds AA-plus, while Moody’s Investors Service rates them an equivalent Aa1. S&P upgraded the state’s rating from AA in September, when Massachusetts went to market with $475 million of bonds.
The issuance includes $30 million of bonds maturing each year from 2015 to 2018. There are $40 million of available bonds maturing each year from 2021 to 2027. The debt is fixed rate and carries no insurance.
The bonds will be used to fund a variety of capital spending projects in the state’s five-year capital investment plan.
Starting on Dec. 1, 2019, Massachusetts may call the bonds, in whole or in part, at 100% of the principal plus interest.
Massachusetts has $18.4 billion of outstanding general obligation debt, $7.66 billion in federal highway anticipation notes, and $1.59 billion of revenue bonds.
Bids are being taken electronically up to 10:30 a.m. Eastern Standard Time Tuesday. None of the bonds have been set aside for retail.
The municipal bond “markets are very strong right now,” said a Massachusetts official. The official said he was confident that investors would be attracted to the state’s strong credit.
Explaining its rating, Fitch said, “Massachusetts consistently has taken timely action to ensure budget balance in recent downturns while maintaining some level of reserves.”
Massachusetts is one of four states with more than $1 billion in its contingency or rainy-day fund.
The Fitch report said the commonwealth’s net tax-supported debt equals a comparatively high 10% of personal income, including sales tax obligations of the Massachusetts Bay Transportation Authority and the Massachusetts School Building Authority, and contract assistance commitments to the Massachusetts Department of Transportation.
“The comparatively high debt levels are partially explained by the commonwealth’s above-average role in relation to local levels of government when compared to other states,” Fitch said.
General obligation bonds continue to represent the majority of the state’s outstanding debt.
Moody’s analysts said managing expenditure pressures, especially from health care and social services, will pose a challenge for Massachusetts, especially in a lower-revenue environment and amid ongoing economic uncertainty. “The commonwealth will continue to take proactive measures to close budget gaps if they emerge and continue its trend of strong financial management,” the agency added.
Massachusetts capital spending is expected to be $3.4 billion in the current fiscal year, 2012 — twice that in fiscal 2007, the year Gov. Deval Patrick took office. Of the $3.4 billion, 70% will go to infrastructure construction costs. The rest will fund studies and designs for construction projects, personnel needed to carry out capital programs, information technology costs, equipment and land purchases, local government grant programs, and other costs.
A substantial portion of the money for the capital projects has already been spent, drawing on funds from the general operating budget, which will be reimbursed by the bonds.
Edwards Wildman Palmer LLP is bond counsel. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is also advising the state. Public Financial Management Inc. is the financial advisor.
