Massachusetts happy with its latest visit to market

Massachusetts’ general obligation bond sale Thursday was the fourth time this year the commonwealth has tapped the municipal bond market.

The state treasurer’s office said it was happy with the deal’s performance, although the high supply during a busy week in the primary was evident in the final spreads. 

“At this point, you’re at the mercy of the market. You’re not really sure from week to week what the volatility’s going to be,” said Sue Perez, Massachusetts’ deputy treasurer for debt management, “but we’re happy with the results, and we’ve been happy this year.”

With $850 billion, the competitive deal was the biggest offering from the Northeast on last week’s calendar. 

The deal received an Aa1 rating from Moody’s and AA-plus ratings from Fitch Ratings and S&P Global Ratings, which all affirmed Massachusetts ahead of the deal. They assign stable outlooks.

Acacia Financial Group was municipal advisor, and Mintz Levin was the bond counsel. 

“The potential for revenue volatility from an economically sensitive tax system is mitigated by the Commonwealth Stabilization Fund, which is expected to remain at a record level this fiscal year and by the ability to access alternate liquidity sources,” Moody’s wrote in its rating report. 

“Our rating on Massachusetts reflects its strong economic metrics, with very high per capita income levels compared to the nation, partly the result of the strong presence of high-technology companies in the Boston metropolitan area,” S&P analyst Ladunni Okolo said in a news release. ”The stable outlook reflects our view that Massachusetts’ underlying economy and currently very strong reserves support its rating, despite its economically sensitive revenue and the potential for a nationwide economic slowdown.”

The investor presentation for the bonds touted the commonwealth’s diverse economy, high per-capita income and “manageable” unfunded pension liabilities. 

The competitive deal included four series: $130 million of Series 2024C, with maturities of 2032 through 2038; $220 million of Series 2024D, with maturities of 2040 through 2046; $400 million of Series 2024E, with maturities of 2051 through 2054; and $100 million of the federally taxable Series 2024F, with maturities of 2026 through 2035. The bonds are callable on Aug. 1, 2034, except for the taxable series, which is not callable. 

Morgan Stanley placed the winning bid for Series C, with 5s ranging from 2.64% to 3.01%. The state sold Series D to BofA Securities, with 5s ranging from 3.2% to 3.86%. Series E went to Jefferies, with 5s of 3.8% and 3.86%, and the taxable series F to Wells Fargo with rates ranging from 4s at 3.8% to 4.25s at par.

The two smaller series, which had shorter maturities, received the most interest, Perez said, with ten bids on each. Series D had eight bids and Series E had six. 

“We received a decent number of bids on each series. A number of them were very tight between the winner and the cover bids,” Perez said. 

Massachusetts is a frequent borrower, but debt from the commonwealth has been up for grabs even more than usual this year, according to Pat Luby, head of municipal strategy for CreditSights.

All issuers in Massachusetts offered a total of $9.94 billion in the first half of 2024, more than double what they issued in the first six months 2023. The commonwealth itself was the third-biggest issuer in the Northeast in the first half of the year, selling $3.347 billion of debt, up from sixth place in a year earlier.

The high volume has pushed Massachusetts’ net supply up to $2.9 billion year-to-date, Luby said, a big increase compared to the net supply of negative $1.8 billion in the first eight months of 2023. 

Investors have not been unhappy with debt from the commonwealth — the treasurer’s office was impressed with the demand for its January and February issuances, Perez said.

But the high Massachusetts volume in the municipal market this year is having impact, Luby said.

“The increase in supply has really pushed the spreads a bit wider on Massachusetts. But given the big calendar that is ahead of us in the marketplace, I think for Massachusetts to come at just a slight concession to where bonds were evaluated prior to the sale, I think it’s pretty strong,” Luby said.

“It demonstrates that there is good demand in the market,” he said. 

“When you’ve got Massachusetts, there’s good retail demand. It’s a diversified economy. It’s a credit that is a core holding and should be a core holding in a lot of portfolios, and getting an opportunity to pick up a little bit of incremental spread, I think, is enticing,” Luby said. 

The market conditions for the deal were favorable, Perez said. 

“On the negotiated deals we did earlier in the year, we were actually pretty amazed at the investor interest,” Perez said. “Each one received over $100 million in individual retail.”

“Last time we were in the market was in June,” Perez said, “and just MMD alone is probably better by 30 basis points than when we were last in the market.”

The commonwealth plans to return to the market in early October with a deal from the Massachusetts Bay Transportation Authority, Perez said, and may offer GOs one more time this year in the fourth quarter. 

Meanwhile, investors looking for state GOs will have many opportunities to do so, Luby said. 

This week’s calendar has $1.6 billion of GOs from Washington, DC and $878 million of Texas GOs through the Texas Transportation Commission. The week of Sept. 23 will see a $1.6 billion GO deal from Illinois, and the week of Oct. 7 has $935 million of GOs scheduled from Connecticut. 

“It’s interesting how a lot of issuers are, more so than usual, telegraphing that they’re going to be in the market,” Luby said. “Issuers are recognizing that the pace of activity in the muni market is going to be pretty heavy over the next month and a half. They want to make sure that investors are aware – ‘Save some money for us.'”