Massachusetts transportation sale to backstop MBTA project

Bonds

Retail orders will begin Wednesday for Massachusetts’ $720 million tax-exempt, negotiated issuance of Commonwealth Transportation Fund bonds in three tranches.

They include a $168 million sustainability component to help fund the $2.3 billion Massachusetts Bay Transportation Authority’s Green Line light rail extension — the so-called GLX project, which is 80% complete with service scheduled to begin later this year.

Massachusetts has designated the tranche as sustainability bonds using International Capital Market Association guidelines, based upon the expectation the GLX project will increase public transit ridership and reduce vehicle emissions.

Aerial view of Lechmere Square in Cambridge, focal point of Massachusetts Bay Transportation Authority Green Line extension.

Massachusetts Deoartment of Transportation

Institutional pricing is Thursday. BofA Securities is the lead manager. Closing is scheduled for June 24.

Moody’s Investors Service rates the bonds Aa1, while S&P Global Ratings and Kroll Bond Rating Agency rate them AA-plus and AAA, respectively. All three assign stable outlooks.

One series will feature a $320 million refunding. Two series of bonds totaling $400 million, including the sustainability tranche, will backstop the state’s rail enhancement program.

Federally mandated as part of the Big Dig megaproject and long-delayed, the GLX project will extend that line 4.3 miles northward from Lechmere Square in Cambridge to Somerville and Medford, involving six new stops in two branches, and a new storage yard.

A rebuilt Lechmere station is also in the works.

Officials expect the extension to spawn a new wave of transit-oriented development, notably near one of the terminal points, Tufts University in Medford.

The GLX expansion is expected to increase public transit ridership by about 50,000 trips and significantly reduce vehicle emissions.

After early cost estimates spiraled to $3 billion, then-state transportation Secretary Stephanie Pollack — now deputy director of the Federal Highway Administration — paused the project in 2015. The commonwealth restarted it two years later after changing contractors and paring $600 million in station designs from the cost.

Lawmakers in 2014 passed the rail enhancement program, which allows the issuance of $6.7 billion of general obligation or special obligation bonds to fund capital expenses of the state Department of Transportation for the benefit of its MBTA unit.

After the 2021 issuance, CTF bonds will have financed more than $2 billion of rail enhancement projects.

The current issue, together with outstanding CTF revenue bonds, are provided “favorable coverage” of 5.9 times annual debt service, according to Kroll. “The CTF bonds enjoy numerous legal protections that KBRA believes insulate the pledged revenues from budget operations of the commonwealth,” Kroll said.

Co-managers for the sale are Citigroup Global Markets Inc., Wells Fargo Securities, 280 CapMarkets, Barclays, Mischler Financial Group, Oppenheimer &. Co., Ramirez & Co. and Roosevelt & Cross.

Frasca & Associates is the municipal advisor. Locke Lord is bond counsel.

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