Massachusetts on Friday will begin a two-day retail order period for a $1.1 billion general obligation bond sale that will include $100 million of new money “green bonds” for environmentally sensitive infrastructure projects.
According to state Treasurer Steven Grossman, Massachusetts will become the first state to offer the tax-exempt bonds under the green label.
“We felt green bonds made a lot of sense,” Grossman said in an interview. “Funding capital projects designed to generate energy conservation is a very significant priority of this administration.
“Feedback has been positive but anecdotal at this point.”
The state, in its last bond sale for fiscal 2013, will hold a retail order period Friday and Monday, with individual Massachusetts investors receiving priority. The institutional sale is set for Tuesday. The green bonds are part of a $475 new-money component for capital construction. Massachusetts will also refinance about $640 million.
Fitch Ratings and Standard & Poor’s rate the bonds AA-plus, while Moody’s Investors Service assigns an Aa1 rating. Massachusetts has $18.4 billion of GO debt outstanding.
The green bonds will mature in 2032. The other new-money bonds will mature from 2039 to 2043. Maturity for the refinancing will run from 2013 to 2025.
Bundling the green bonds with the bigger sale “gives it a lot higher profile,” said John Hallacy, director of municipal research at Bank of America Merrill Lynch. “It is a sound use of bond proceeds. Other issuers have come to market with some similar features but not the green label. Those other transactions were often in a lease format. Here we have the commonwealth’s GO.
“People buy municipal bonds for any number of reasons, one of them the reasonable safety and security of their principal,” Hallacy added. “But they also want to invest toward a good purpose and green bonds provide that.”
Grossman said the bonds could appeal to pension funds and endowments with green mandates, and spur interest among large institutional investors that might otherwise might not buy Massachusetts bonds.
Proceeds will finance many projects identified under the accelerated energy program that Gov. Deval Patrick launched in January 2012. The program aims to reduce energy consumption by 20% to 25% across 700 state sites, create roughly 4,000 clean energy jobs and save the commonwealth an estimated $43 million annually.
“This will reach all across the commonwealth,” said Grossman. “There’s not a county nor a major area that is not affected. This is a substantial program for everybody.”
Target categories include clean water and drinking water projects; energy efficiency and conservation projects in state buildings; land acquisition, open-space protection and environmental remediation projects; and river revitalization and habitat restoration projects.
“We aligned ourselves with the World Bank and how they define projects,” said Grossman. The World Bank has issued just over $3 billion in green bonds to finance projects that minimize climate change.
Grossman sees other states following in tow. “It’s a no-brainer,” he said. “When I became treasurer I sat with Colin MacNaught and we went over new innovative ways to improve how we serve the taxpayers and investors. We had a solid foundation, and our goal was to build.”
MacNaught is the assistant treasurer for debt management.
The refinancing component will enable Massachusetts to advance refund outstanding GO bonds for present-value savings without extending final maturities. “I’ve never been one to predict how the marketplace will react, but suffice it to say the savings could be considerable. We’ve had great success with our refinancings,” said Grossman.
Bank of America Merrill Lynch is lead manager for the bond sale. Nixon Peabody LLP is bond counsel. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is disclosure counsel. Edwards Wildman Palmer LLP is advising the underwriters. Public Financial Management Inc. is the commonwealth’s financial advisor.
In New York City, Comptroller John Liu has noted growing support for his plan to issue “green apple bonds” as a means to finance the removal of carcinogens from outdated light fixtures in city schools.
Mayor Michael Bloomberg’s administration last week settled a lawsuit filed two years ago over the timetable for cleanup. The city has agreed to finish the cleanup by the end of 2016.
According to Liu, the city could save $339 million through the bonds.
“Green apple bonds are simple, possible and critical to our future,” said Liu, a mayoral candidate.