| March 13
March 13 Massachusetts will begin selling
general obligation bonds to retail investors for weeks at a time
over an electronic trading platform on Monday, under a program
that officials say is the first of its kind in the $3.7 trillion
U.S. municipal bond market.
The state is trying to tap more directly and frequently into
the rich vein of retail investors around the country who may
have cash sitting on the sidelines.
Usually, states and cities offer bonds to retail investors
over a one- or two-day retail order period before then selling
the debt to institutional investors.
But Massachusetts' model will allow retail investors to
purchase bonds for two weeks out of nearly every month througout
The program, called MassDirect Notes, is modeled on
TreasuryDirect, a website that allows individuals to buy
Treasuries directly from the U.S. government.
Under MassDirect, investors will still need to use their
investment advisors to place orders on the trading platform.
Massachusetts will sell $30 million of one series of
MassDirect Notes beginning on Monday, and $30 million of a
second series the following week.
Altogether, the state will sell up to $250 million of
tax-exempt fixed-rate GO bonds under the program through August,
with prices re-set daily. But officials aim to make the program
permanent if there is enough interest, they said.
The kind of bonds sold under the program will always be the
same: general obligation bonds with maturities of 10 years or
The new sales method runs in conjunction with traditional
offerings to institutions and doesn't increase the amount of
money the state plans to borrow. It also eliminates the
traditional one-day retail order period in Massachusetts as
investors knew it.
The program "will create the kind of competition and savings
that improves the bottom line for the Commonwealth," said Steven
Grossman in a statement.
Borrowing costs would be lowered over the long run because
of the daily re-pricing, and because supply can more closely
match demand, which will "reduce market risk and normalize our
pricing spreads," said Colin MacNaught, the state's assistant
treasurer for debt management.
Prices will be posted daily on the state's investor website,
he said. The model will also bring in cash flow for the state on
a monthly basis.
Fitch Ratings assigned an AA-plus rating on Thursday to the
bonds, which have maturities ranging from two to 10 years. Fitch
also affirmed its AA-plus rating on about $19 billion of the
state's outstanding GO and commonwealth-guaranteed bonds. The
outlook is stable.
The method of sale is a policy decision by Massachusetts and
does not impact the rating, according to Fitch analyst Laura
Citigroup is underwriting the deal.
The state is paying the full takedown. But the bank is
keeping only the management fee component, while the sales
commission is being passed on to the investment advisor who
places the order, according to the treasurer's office.
Citi is offering the bonds to retail investors through TMC
Bonds, an inter-dealer electronic trading platform for fixed
That will allow Massachusetts to tap into as many as 800
different brokerage and investment advisory firms representing
over 120,000 retail brokers, who already use TMC in the
secondary muni market, according to the preliminary official
Over the past couple years, Massachusetts has been
attempting to lure investors with increased transparency, a
user-friendly website and diverse offerings, like so-called
green bonds, which the state sold last year to fund clean water,
remediation, land acquisition and energy efficiency programs.
The state also provides full disclosure statements and holds
an earnings call every 60 days.
"Massachusetts is on the vanguard of technology when it
comes to issuers and using transparency and being very
innovative, for both individual investors and market
professionals," said Stephen Winterstein, chief municipal
strategist at Wilmington Trust Investment Advisors.