Mass. Water Pollution Abatement Trust Plans $561M Refunding Sale

The Massachusetts Water Pollution Abatement Trust plans to sell $561.24 million of state revolving fund refunding bonds.

Thursday's institutional pricing of the tax-exempt, serial structure bonds will follow a one-day retail order period.

Bank of America Merrill Lynch is senior manager for the trust's underwriting syndicate. Proceeds will refinance outstanding bonds and generate debt-service savings.

Closing date is June 12.

The trust provides loans to cities and towns for clean water and drinking water infrastructure development. Since its inception in 1989, it has loaned $6 billion to nearly 300 borrowers.

According to executive director Sue Perez, the trust receives significant federal and commonwealth support. It has received more than $2.1 billion in federal capitalization grants and state matching funds through fiscal 2013.

The trust administers four financing programs.

Roughly 88% of outstanding loans and 97.5% of outstanding bonds are associated with the pool state revolving fund program, the only active one. The other programs are the Massachusetts Water Resources Authority, New Bedford state revolving fund and South Essex Sewerage District.

Fitch Ratings and Standard & Poor's rate the bonds AAA, while Moody's Investors Service assigns an equivalent Aaa rating.

According to state Treasurer Steven Grossman, the trust has the highest bond rating of any state agency. Grossman chairs the trust's three-member board.

"More than 96% of the trust's pool SRF bond program consists of borrowers exhibiting investment-grade ratings," Fitch said in a report. "Loan security is also strong as borrowers are secured by general obligation pledges of [cities] and towns, local utility revenue pledges, or a combination of both."

The pool SRF, according to bond documents, has $3.3 billion in loan principal outstanding, $3.2 billion in bond principal outstanding and a reserve balance of $1 billion.

Loan repayments account for 81% of the trust's debt service, Perez said on an investor call. Commonwealth assistance and reserve earnings total 10% and 9%, respectively.

Although Moody's cited the trust's large exposure to the Massachusetts Water Resources Authority -- the authority holds 28% of all outstanding loans -- its Aa2 rating of the MWRA and the diverse entities that provide revenue to the authority mitigate the exposure.

In all, 61 metropolitan Boston communities provide revenue streams to the authority with a weighted average rating of Aa2, said Moody's. Boston Water and Sewer, which Moody's rates Aa1, provides 31% of the authority's revenues.

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC and Edwards Wildman Palmer LLP are bond counsel and program counsel, respectively, for the trust. Nixon Peabody LLP is representing the underwriters.

Public Financial Management Inc. is the financial advisor.

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