In October, SCS was appointed to lead manage $520 million TBTA refunding issue, consisting of bonds maturing between 2023 and 2028. $200 million term bonds maturing in 2042 were added to the transaction on the pricing date as a result of strong retail performance, favorable market conditions and SCS’s confident execution.
Rigorous maturity-by-maturity refunded bond analysis led to the underwriting assignment. Refunding candidates with call dates as far out as 5/15/2025 were selected based on rigorous evaluation criteria—each maturity needed to meet certain PV savings, refunding efficiency, future interest rate break even thresholds.
Favorable market dynamics. In the days leading up to pricing, the MMD curve trended downward significantly as investors anticipated a lower municipal issuance/supply resulting from the House proposed Tax Bill released on November 2, including provisions to eliminate tax-exemption on advance refunding and PAB.
Aggressive and successful retail pricing strategy. The retail pricing spreads were set at 1 to 2 basis points tighter than the syndicate consensus. Professional and individual retail accounts placed a total of $975.2 million in orders during retail order period (vs. $520 million bonds offered). All 6 maturities from 2023 to 2028 were fully subscribed for. The 2023 and 2028 maturities were 4.8x and 3.1x oversubscribed. SCS lowered spreads by 2 to 5 bps (on top of the MMD scale moves) on every maturity prior to the institutional sale.
TBTA up-sizes transaction by $200 million on institutional pricing date. With positive market momentum, TBTA considered raising additional capital on the morning of institutional sale. The decision to proceed largely rested on SCS’s detailed knowledge of the market demand and our confidence in executing the incremental sale at an extremely attractive rate. The additional bonds offered mature in 2042, in the range of the curve not previously covered during the retail order period.
Investors placed an additional $2.2 billion in priority orders during institutional order period. Oversubscription for maturities offered ranged from 2.19x to 9.01x. Notably, the new 2042 term bond (totaling $200 million) received over $948 million in orders. Final yields ranged from 1.51% in 2023 to 2.67% in 2042, reflecting additional yield reduction from retail sale results by another 2 to 6 bps on all maturities (except for 2024 which was held flat). Final spreads ranged between minus 2 bps for 2023 maturity to +10 bps and +12 bps for the 2028 and 2042 maturities, respectively.
The TBTA bonds were more aggressively priced than higher-rated Commonwealth of Massachusetts’ Transportation Fund Revenue Bonds (Aa1/AAA), priced on the same day.
Robust institutional orders resulted in lowest pricing spreads ever for TBTA.