Appetite Maryland's credits is set for another test Oct. 8 as the Department of Transportation comes to market with over $800 million offered in a competitive sale as required by statute.
"Under Maryland state law, the Department's bond issues are preferred to be conducted on a competitive basis unless the Secretary determines that extraordinary market conditions exist," said David Broughton, media relations manager for MDOT's Office of Public Affairs.
"Based on recent successful competitive sales, the Department did not feel the need to request an exception for these bonds."
The sale is divided into two tranches, with $345 million designated as Consolidated Transportation Bonds Series 2025B. The second half accounts for $497.7 million of Consolidated Transportation Bonds Series 2025C Refunding. All the bonds are tax exempt with an 8-year par call.
Any new paper coming out of Maryland is well scrutinized for signs of trouble ever since the state was knocked by a credit downgrade to its issuer rating, and General Obligation bonds to Aa1 from Aaa by Moody's Ratings in
"The bonds should receive strong institutional reception despite an earlier downgrade on the state as well as on linked DOT bonds," said Jeff Lipton, The Bond Buyer's market intelligence analyst for municipals.
"Buyside credit approval should not be a heavy lift given the statutorily imposed basket of irrevocably pledged, state-collected taxes and fees before being made available for other uses, subject to deposit to the state's Transportation Trust Fund and exhibiting a proven collection track record."
Proceeds from the 2025 B Bonds will provide a portion of the capital funds needed for the Consolidated Transportation Program. Proceeds from the 2025 C Bonds will be used to refund certain maturities of outstanding Consolidated Transportation Bonds.
McKennon Shelton & Henn LLP in Baltimore is serving as the bond counsel, Davenport & Company LLC are the municipal advisors.
The deal is rated AAA by S&P Global Ratings, Aa1 by Moody's Ratings and AA+ by Fitch.
"The rating reflects limited growth prospects for the various dedicated taxes and robust resilience of the structure to economic declines," said Fitch. "Fitch's analysis is based on maximum anticipated leverage for all bonds that could draw on the dedicated taxes."
Market watchers are predicting the bonds will have a smooth ride. "The market response should be relatively strong as there is not a tremendous secondary market float of Maryland paper currently," said Michael Pietronico, founding partner at Miller Tabak Asset Management.
Going with a competitive sale could also provide a clearer picture of demand in the market.
"To the extent there is any give in the pricing of the bonds, logic would dictate it will be less in the case of a competitive sale of a very good name than a negotiated issue," said John Mousseau, vice chairman and CIO for Cumberland Advisors.
The current federal government shutdown could also play a role.
"A cursory look at government shutdowns that last more than 10 days tend to reflect a drop in interest rates, at least by the ten-year Treasury," Mousseau added.
"If you have this backdrop, this will increase demand by investors' outlook of a directional trade and demand for high quality issuers."
MDOT's last foray into the market was successful.
"The Department successfully sold $200 million of Consolidated Transportation Bonds competitively in June with five underwriters submitting bids," said Broughton.
"All bids received had a low-high True Interest Cost spread of less than 9 basis points."
The successful sales of the past and the present are happening under dark financial clouds emanating from nearby Washington D.C. due to the Trump administration's efforts to cut the federal workforce.
The Maryland Association of Counties pegs the number at 15,000 lost federal jobs since January. Governor Wes Moore is also
The municipal bond market is flying high as primary market municipal issuance is on track to set another record in 2025, and October sales are expected to exceed $50 billion.
"This tightening supply environment for the end of the year means investors will face more competition for quality bonds," writes Tom Kozlik, managing director and head of public policy and municipal strategy for Hilltop Securities. "Individual investors, in particular, may find it more challenging to access attractive offerings."
"For much of the year, the market has demonstrated a willingness to absorb heavy supply and so this prime quality credit should come at spreads reflective of the market and strength of the issuer," said Lipton.
