Massachusetts’ request for qualifications for public finance investment banking and underwriting services — its first in four years to pre-qualify banks to use in negotiated sales — has elicited widespread responses, state Treasury officials say.
The commonwealth this week and early next week plans to conduct interviews and hear oral presentations for banks wishing to be senior managers. It expects to award contracts early next month.
According to Colin MacNaught, assistant treasurer for debt management, 39 banks had expressed interest as of last Thursday.
MacNaught and his staff of five are coordinating the effort.
“We’ve had a ton of responses, considering the amount of consolidation we’ve seen in the banking industry. I think banks like the credit and what we’re doing. They want to be a part of it,” MacNaught said in an interview.
Standard & Poor’s last September raised Massachusetts’ general obligation bond rating to AA-plus from AA with a stable outlook, shortly after Gov. Deval Patrick, Treasurer Steven Grossman and other officials pitched the state’s attributes to the three major rating agencies.
Massachusetts in 2011 enacted cost reductions in pensions and municipal health care, and became the fourth state with a rainy-day fund exceeding $1 billion.
Moody’s Investors Service and Fitch Ratings rate the Bay State Aa1 and AA-plus, respectively.
MacNaught said the state, which issued the RFQ on March 15, expects to conduct most of its borrowings by competitive sale, given market stability and consistent investor demand for bonds.
“We’re confident that if the market is in good shape, a competitive sale will lead to better pricing,” he said. “We will also consider using a negotiated sale strategically, but there would have to be a compelling reason to go negotiated.”
Pre-qualifying alone isn’t enough, MacNaught added.
“We’re trying to be clear in the RFQ to let banks know that even after pre-qualifying, we want as much competition as possible among the banks,” he said. “Each bank is going to have to earn their way into an underwriting syndicate by demonstrating their value.”
After the RFQ, Treasury officials plan to develop a scorecard to keep track of banking performance in such areas as competitive sales, helping reach new investors and creative refunding ideas.
Grossman, elected treasurer in 2010, wants effective measuring sticks for all who do business with his department, including bond counsel and financial advisors.
A bank needn’t be big or small per se, MacNaught said. “If the bank has a good track record of underwriting bonds to support better pricing, if the team of bankers is smart and can demonstrate a high level of service, then we’re interested,” he said.
Massachusetts’ fiscal 2012 financial plan includes roughly $320 million in accelerated bridge program borrowing.
They are special obligation bonds that the state legislature approved, secured by gas tax revenues and Registry of Motor Vehicle fees under a statewide initiative to repair and rehabilitate about 600 structurally deficient bridges.
Moody’s and Standard & Poor’s rate the bonds triple-A.
Though Massachusetts was to borrow $1.75 billion to support the state’s capital plan in fiscal 2012, it may have to borrow a further $600 million by issuing GO bonds, MacNaught said, based on bond sales since last July.
The amount and timing, he said, will depend on the pace of capital spending on infrastructure projects.