Massachusetts on Monday will begin the first sale of MassDirect notes, a rolling program that will offer tax-exempt general obligation bonds to retail investors the last two weeks of every month.
The commonwealth will sell $250 million over six months through the program — $60 million each in March, April and May, $30 million in both June and July, and $10 million in August.
According to state Treasurer Steven Grossman, the program is modeled after the U.S. Treasury's TreasuryDirect program and is the first of its kind at the state level. Grossman expects to lower borrowing costs by pricing bonds more efficiently due to the wider distribution.
"I call this new innovation win-win," Grossman said in an interview Thursday. "It's a win for the commonwealth by allowing us to lower our borrowing costs and a win for investors because it's easier for them to do business with us. MassDirect notes will help us sell more bonds to individual investors, and it will create the kind of competition and savings that includes the bottom line for the commonwealth.
"It's just good customer service."
The initial week of each monthly offering will involve three-, five- and 10-year maturities; the second week will feature two-, four- and nine-year notes. All are fixed rate.
Citi has engaged electronic trading platform TMC Bonds LLC to sell and distribute these bonds. Through TMC, the commonwealth can access 800 brokerage and investment advisory firms that represent more than 120,000 retail brokers, all of whom already use TMC Bonds in the secondary market.
"This is a step into the future for the municipal business," said Ward Marsh, head the municipal securities division at Citi, which is underwriting the sale.
Typically, retail accounts for 30% of Massachusetts bond proceeds when there is a retail order period, according to state officials. Massachusetts, as do many other states, often holds single-day retail order periods as part of infrequent bond sales. The new program, said Grossman, will complement those traditional bond sales.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is bond counsel and disclosure counsel. Edwards Wildman Palmer LLP is representing the underwriter.
Massachusetts has scheduled a traditional $500 million GO sale for late May.
Fitch Ratings and Standard & Poor's rate the bonds AA-plus, while Moody's Investors Service rates them Aa1.
Massachusetts is launching the program amid a nationwide push for retail investors. On Tuesday, retail accounted for $1.1 billion, or 62%, of California's $1.8 billion GO sale. There, the retail period enables state officials to gauge market levels before selling the bonds to institutions.
Rolling offerings are popular with corporate issuers such as General Electric Co., Caterpillar Inc., and Duke Energy Corp.
Last summer, after Massachusetts and received about $270 million of retail orders for its $679 million GO sale, Grossman and assistant treasurer for debt management Colin MacNaught talked at great length about the rolling retail concept.
According to Grossman, the face amount is $5,000, although the state could adjust the amount to as low as $1,000, as it has tried in the past. "We'll see how it goes," said Grossman.
"For example, you have a couple just starting out and they receive a wedding present," he said. "Not $5,000, not $10,000, but $1,000. They build it into their savings plans with an overall objective of a lifetime of investing in Massachusetts securities."
Grossman, a Democratic candidate for governor and the former chief executive of Grossman Marketing Group in Somerville, Mass., said the program is the latest move by Bay State officials to innovate and enhance disclosure.
He cited green bonds, sold last summer to retrofit 700 state buildings with expected energy savings of up to 25%. In addition, Massachusetts officials launched a social impact bond program under which the commonwealth pays only for the success of a social program, such as reduction in juvenile crime.
Massachusetts Treasury also rolled out a
"It's always good to be a pioneer," said Grossman. "You need to constantly innovate."
Grossman's office has scheduled its next investor conference call for Friday, with a discussion of the 2014-18 capital plan on the agenda.
