Massachusetts Water sale features green bonds and taxables

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The Massachusetts Water Resources Authority is tapping two muni trends — green bonds and taxables — in its roughly $620 million sale planned for Thursday.

Citi is lead manager.

Mass Water’s sale includes $547 million of Series 2019F taxable green bonds, $50 million of Series 2019E taxable general revenue refunding bonds and $23.3 million of Series 2019G refunding green bonds, according to bond documents.

The authority provides wholesale water and wastewater services to roughly 3 million residents in the state’s eastern and central regions, notably Greater Boston.

“Recently low taxable yields have opened a window of opportunity for advance refunding of tax-free issues using taxable bonds and issuers are rushing to take advantage,” Janney Capital Markets said.

The deal is expected to mature serially from 2020 through 2034 and a term bond in 2039. PFM is the municipal advisor and McCarter & English LLP is bond counsel. Closing is set for Nov. 1.

Moody’s Investors Service rates the bonds Aa1. S&P Global Ratings and Fitch Ratings rate them an equivalent AA-plus. All three assign stable outlooks.
Mass Water has roughly $4.9 billion of debt as of Sept. 1. Debt service for fiscal 2020 is $464.8 million.

The authority transitioned its capital focus from costly, court-mandated projects to ongoing rehabilitation and water system redundancy. It expects water redundancy projects to cover 15 years.

It estimates spending for capital projects from fiscal 2019 to 2023 at just over $1 billion.

“Despite the uptick in expected spending, Fitch believes future capital costs will remain manageable given MWRA's vigilant project oversight and its board's self-imposed spending cap for capital projects,” the rating agency said.

Long-term borrowings, including revenue bonds and state revolving fund loans, will backstop most capital needs. Debt to net plant is “notably high” at 94%, Fitch said, while debt to funds available for debt service is 12 times and annual debt service costs consume more than half of gross annual revenues.

Moody’s said its rating reflects “the strong credit profile of the authority's service area, very stable but slim debt service coverage, satisfactory liquidity for the rating category, strong management, well-funded pension plan and comprehensive fiscal policies.”

Also, said Moody’s, the rating factors the authority’s tested ability to intercept member municipalities' state aid in the event of nonpayment to the authority.

“These credit strengths mitigate a highly leveraged debt position including a variable rate component subject to ongoing remarketing,” Moody’s added.

Wastewater projects include construction of the Deer Island Wastewater Treatment Plant along Boston Harbor; and a combined sewer overflow to improve water quality in Boston Harbor, the Charles, Mystic and Neponset rivers and Alfwife Brook, all in Greater Boston.

Waterworks projects include construction of the John J. Carroll and William A. Brutsch water treatment plants in Marlborough and Ware, respectively. Since its creation in 1985, Mass Water has built more than $6 billion of new facilities.

Gov. Charlie Baker last month swore in Joseph Foti and Paul Flanagan to the authority’s 11-member board of directors. Board members are appointed by the governor or directly or indirectly by elected officials in customer communities.

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