The Massachusetts Clean Water Trust returned to the market on Wednesday where its triple-A green and sustainability bonds were well received.
The $541 million negotiated deal is slightly bigger than the trust's past offerings. The trust's directors said escalations in climate change,
The deal had three tranches. The first, $261.8 million of Series 26A green bonds, had maturity dates from 2026-2042. Series 26B, $146.6 million of sustainability bonds, will mature from 2039 through 2045. The third series, $132.8 million of green bonds, refunds bonds from 2020 and mature from 2026 through 2037.
The first series yielded from 2.7% for the 2026 maturity to 3.12% for the 2035. The second series yielded from 3.39% for the 2039 bonds to 3.88% for the 2045. For the refunding series, the yields ranged from 2.7% for the 2026 maturity to 3.12% for 2035.
The deal was managed by Jefferies with six co-managers. PFM and Masterson Advisers were the deal's municipal advisors and Mintz was the counsel.
"The trust has always and continues to model best practices across the board, ultimately delivering low-cost capital to communities across the Commonwealth for important infrastructure projects," said Amanda Lee, a managing director at Jefferies.
The bonds are rated AAA by Fitch Ratings and S&P Global Ratings and Aaa by Moody's.
The trust taps the bond market around once a year — although it skipped last year — with a deal that resembles last week's, said Sue Perez, the trust's executive director and Massachusetts' deputy treasurer for debt management.
"Every time we do a deal, we're going to optimize the amount of loans we're funding from bond proceeds," Perez said. "And that's based on market dynamics, it's based on available revenues under our master trust agreement, and [on] existing debt service. So, each time, we do an analysis of how much makes sense to do as bonds and how much makes sense to do of other funding."
The proceeds from the bonds will be loaned to 243 borrowers in Massachusetts for projects that adhere to the Clean Water Act and Safe Drinking Water Act. The trust's largest borrower is the Massachusetts Water Resources Authority, which serves Boston and 60 other communities in the metropolitan area, according to an online investor presentation about the deal.
The trust has financed approximately $9.1 billion in water and wastewater infrastructure projects, the roadshow presentation said, which means Massachusetts ranks as one of the top five states in leveraged volume.
The trust has seen higher demand for its loans over the last few years, Perez said. That mirrors what's happening at other water- and sewer-related revolving loan funds, according to Fitch analyst Kristen Reifsnyder.
"Infrastructure needs are very high" for water and sewer entities across the country, Reifsnyder said. "If there are opportunities for localities to access their revolving loan funds, they're going to do it. Because, relative to going to the market directly, it's an inexpensive way to issue debt."
Reifsnyder expects demand to continue to increase; grants from the bipartisan infrastructure bill are declining
The trust has high credit quality, which isn't unusual for a state revolving fund — all but one of the SRFs Fitch rates are AAA, Reifsnyder said.
However, the triple-A rating may have helped the trust stand out in last week's primary market, according to John Hallacy, president of John Hallacy Consulting.
"There are not as many AAA credits in the market these days," Hallacy said.
He said 73% of the trust's loans enjoy a general obligation bond pledge for repayment; the rest have water and sewer bond pledges. He considered its coverage "adequate" at 1.28 times debt service.
The borrower pool for the loans is very highly rated, Reifsnyder said, and its cash flow is strong.
As usual for the trust, the bonds carried a green designation, and one tranche was designated "sustainable," which represents both a green and social designation, Perez said.
The trust has been using the green designation since 2014 and the
The labels reflect what the trust was already doing long before the labels existed, she said.
"We've always been green, even prior to being vogue to be ESG," Perez said.
"We don't necessarily see a pricing benefit" from the labels, Perez said. But with the green and sustainable designations, "we get to tell a good story."
The sustainable tranche of bonds will fund loans that go to disadvantaged communities. The sustainable label is rarer among SRFs, Perez said, because most of them don't have enough loans benefiting those communities to make a whole tranche.
"In Massachusetts, those disadvantaged communities are actually rated very well compared to other parts of the country," Perez said. "It's a great story to be able to tell, that this program is actually helping cities and towns, a number of them are gateway cities, move forward with their water infrastructure projects."
The trust typically receives high retail demand, Perez said. She credits the demand to people's familiarity with the trust — "we've been doing this for a number of years," she said — and the fact that it funds local projects.
"In some cases, you're funding projects in some of these investors' backyards," Perez said. "So if they're invested, they don't [mind the wait] in traffic, maybe."
