With more than $1 billion of bonds coming to market from various state- level Massachusetts issuers within two months, the summer doldrums have ended for investors who follow the commonwealth.
In the next two weeks alone, about $860 million of debt is on tap from some of the state's largest issuers.
Tomorrow, the Massachusetts Bay Transportation Authority will price $160 million of notes. The same day, the Massachusetts Health and Educational Facilities Authority will issue $115 million of revenue bonds on behalf of Boston College.
On Sept. 3, the Massachusetts Housing Finance Agency intends to issue $83.5 million of single-family mortgage revenue bonds.
And, most significantly, the state - which just issued $500 million of general obligation bonds on Aug. 27 - plans to refund $500 million of variable-rate debt by the end of next week.
Looking out farther, the Treasurer's Office is working with acting Gov. Paul Cellucci's administration on issuing the second, $320 million tranche of what ultimately may be $1.5 billion of federal highway grant anticipation notes for the $11.6 billion Central Artery/Tunnel project.
In June, the commonwealth sold $580 million of Gans.
"The most we can issue of Gans under the current law is $900 million," said deputy treasurer Jeffrey S. Stearns. "Even though we got the Gans rated for $1.5 billion, so far the legislature has authorized to issue only $900 million." State officials are confident of getting authorization for another $600 million next year.
Stearns expects to issue the $320 million of Gans within the next two months.
Last week's new-money GO deal, which was negotiated with Merrill Lynch & Co. with a true interest cost of 4.89%, had maturities from 2008 to 2018, and a yield range from 4.40% to a noncallable 4.90% in 2018. There was also a portion of zero-coupon bonds that came in at 5.02%.
That deal was oversubscribed, Stearns said. Portfolio managers duly noted their enthusiasm.
"The Massachusetts GO deal went well because they were able to do something interesting with the structure. That brought in buyers," said Dianne Sales, a vice president at John Hancock Advisers Inc.
"The call structure made it attractive," she added. "They were able to put in a few zero coupons." That feature coupled with low interest rates meant "they were able to do well because that structure is very scarce in this state." Attracting investors is "dependent on the ability to do something interesting," Sales said.
As for the companion piece to last week's GO offering, the refunding of variable-rate bonds will carry a fixed rate in order to capitalize on the favorable interest rates, Stearns said.
Under Massachusetts tax law, if an issuer brings two deals to market within 15 days, the yields can be blended, which helps provide savings by dint of the higher yield on the new-money piece, Stearns said.
The swap rate on the refunding deal is 4.17%. PaineWebber Inc. will underwrite the variable-rate bonds. Swaps were competitively bid and will be handled by a combination of Lehman Brothers and Salomon Smith Barney Inc.
Even though two issuers coming to market next week recently received upgrades, some analysts are growing concerned that the state's recent series of tax cuts amounting to $1 billion may reduce financial flexibility should the economy sour.
Moody's Investors Service upgraded the MBTA to MIG-1 from MIG-2 in advance of the $160 million sale to finance operating expenses plus a payment on $165 million of notes that mature on Friday.
Standard & Poor's rates the MBTA's debt SP-1-plus and Fitch IBCA Inc. assigned a rating of F1 to the notes.
"This is a pretty easy deal for us," said a Transportation Authority spokesman. "We flip these notes back and forth twice a year to meet expenses."
"MBTA is pretty much a state appropriation-type credit, not quite so to the extent you like to see, but if you judge that MBTA has got some reasonable controls on their expenses, you're going to like that credit," Sales said.
Sales and other buyers noted that the state's economy remains strong. Cellucci, who is being challenged for the Republican gubernatorial nomination by state Treasurer Joseph D. Malone, can boast of a $1.1 billion budget surplus.
But despite the relative fiscal calm, analysts fear Massachusetts' ability to cope with a downturn may be sapped by tax cuts totaling $990 million.
"We upgraded the commonwealth last October and our view hasn't changed," said Philip Shapiro, a Standard & Poor's managing director. "But we're increasingly concerned about the sustainability of enacting these substantial cuts."
Standard & Poor's and Fitch IBCA both rate Massachusetts outstanding GO debt AA-minus. Moody's, which rates the state GOs Aa3, noted in its latest report that a strong credit profile is tempered by a heavy debt load and extensive capital commitments.
But these concerns haven't trickled down to the state's constituent agencies. Moody's also upgraded Boston College's $119 million of outstanding debt to Aa3 from A1 in advance of MassHefa's $115 million deal. Standard & Poor's rates the issue AA-minus.
Lisa Martin, a Moody's vice president and senior analyst, praised Boston College's strong marketing and student retention program, as well as its aggressive fund-raising.
"One of the early concerns we had relating to Boston College was their reliance on debt issuance in the past," she said. "But their future plans are relatively modest, and we feel comfortable that they'll be able to support additional borrowing plans."
Competition in Massachusetts for college students generally is very intense, especially in the Boston and Worcester area, noted Robert Ciolek, MassHefa's executive director. "But they (Boston College) managed to put together a strong financial program and that's been proven by the upgrade," he said.
Philip G. Condon, a managing director and portfolio manager at Scudder, Stevens & Clark Inc., said he's intrigued by the Boston College issue as it represents an infrequent face in the market.
Considering a dry spell over the last month, Condon and others said a flood of Massachusetts paper would be welcome.
"Supply has been heavy most of the year, but it seemed to be fairly light in the last month or so," Condon said. "I would suspect that there's likely to be a greater interest in bonds with the stock market being a little soft lately, and Treasuries are doing well. There is a positive tone in the market."
Demand is very strong, John Hancock's Sales said, and anyone who says there's a glut in Massachusetts should take a look to the west.
"The $500 million in state GOs and all the others, it's not that huge," Sales said."This is not like New York State, where you have tremendous amounts of supply coming in and only pretty decent demand."
