Massachusetts is seeking investor feedback on the idea of a rolling offering of general obligation bonds for retail investors as part of its overall financing program.
According to Colin MacNaught, the assistant treasurer for debt management, officials are considering structuring some GO offerings as a defined program similar to the U.S. Treasury Direct.
“If the interest-rate environment changes -- that is, rates continue to rise -- retail could be the key to more efficient market access and better pricing for issuers,” MacNaught said in an interview. “We think the rolling offering concept is worth exploring because it would allow us to potentially sell bonds to retail investors more efficiently, with bond proceeds regularly coming in to the commonwealth.”
In a memo to investors, MacNaught asked for responses by Wednesday.
Massachusetts last month received about $270 million of retail orders – the state’s largest retail volume in about three years, according to MacNaught -- along with its $670 million general obligation bond sale, which included $470 million in refunding, $100 million of standard GO and $100 million of environmental “green bonds.”
MacNaught said he and Treasurer Steven Grossman have had lengthy talks about the rolling bond concept.
“One of our biggest goals is for our bonds to be as widely held as possible. Having more individual investors participate in financings is the key to achieving that long-term goal,” MacNaught said.
Moody’s Investors Service rates Massachusetts’ GO bonds Aa1, while Fitch Ratings and Standard & Poor’s assign AA-plus ratings.
MacNaught, while stressing that the idea is still conceptual, said the rolling bonds could be tax-exempt or taxable, and the state could offer them to investors, with limits on the size of orders, for the first two weeks of each month with a closing in the third week. State officials could use the fourth week of each month “to ensure integration issues are mitigated,” MacNaught said in the memo.
He added that at the beginning of the order period, to assist or enhance price guidance over the two-week order period, Massachusetts may determine and publish a set spread to U.S. Treasuries for each maturity being offered. Final pricing, said MacNaught, would also be based on that set spread. U.S. Treasuries provide “a much more transparent index for retail investors,” MacNaught said in the memo.
Massachusetts would continue to finance other bond sales, including GO, while a rolling offering is under way, he said. It would select a bank from its preapproved list, through a process it would determine.
Retail investor demand would determine the amount of such bonds monthly and MacNaught wants to keep underwriting needs minimal.