TAX NEWS - June 2010
Massachusetts Tax: Massachusetts's $150 Million School Bonds Beat Build Americas
The Massachusetts School Building Authority's debt, rated third-highest by the three major credit companies, was priced to yield 5.47 percent, or 44 basis points below the average yield for Build Americas, according to a Wells Fargo index. A basis point is 0.01 percentage point. In April, Los Angeles schools sold similar obligations at 8 basis points below the benchmark.
The school issue, the third-largest of such securities this year, was encouraged by the popularity of Build America Bonds, said Evan Rourke, a portfolio manager with Boston-based Eaton Vance Corp. Both of the taxable securities were created under the U.S. economic stimulus last year.
"BABs helped pave the way" for qualified school bonds, said Rourke, who helps oversee $8.3 billion in municipal holdings. "They evolved into a product everyone understands and created a strong buyer base." Build Americas, with issuance totaling $111 billion, are the fastest-growing part of the $2.8 trillion municipal market.
The Massachusetts offering boosted year-to-date issuance of so-called QSCBs to $1.9 billion, compared with $2.7 billion in all of 2009, according to data compiled by Bloomberg. Issuers from Nevada to Ohio plan to sell an additional $160.4 million of the school bonds this week.
The federal government subsidizes as much as 100 percent of the interest costs on the school debt and a fixed 35 percent on Build Americas. Since March, the school bond subsidy, formerly offered to investors as a tax credit on interest paid, is paid directly to the issuer, as is the case with Build America Bonds.
Third-Wealthiest
The building authority, created in 2004 by the third- wealthiest state per capita, can fund as much as $500 million in new construction and repair projects annually through a dedicated portion of the state sales tax, according to Fitch Ratings. Underwriters led by Barclays Plc marketed the securities.
"It's a very unique product," said Katherine Craven, executive director of the Massachusetts School Building Authority. "Coupled with the authority's good reputation and credit, the deal was received very well. We actually wrapped the deal up a day earlier than planned."
The Massachusetts bonds, maturing in 2027, are backed by a dedicated 1 percent sales tax, according to Standard & Poor's. Massachusetts's sales tax revenue has fallen for three straight years, offering documents show. U.S. retail sales fell 1.2 percent in May, the Commerce Department said June 11.
'Relatively Stable'
Even amid the U.S. recession, "sales tax has been a relatively stable revenue source over time," analysts at Fitch Ratings said in a June 9 report. The authority's bonds carry a rating of AA from Fitch and S&P, third-highest of 10 investment grades.
The issue comprised about half of the school building authority's 2010 allocation of the bonds, according to U.S. Treasury data.
Massachusetts in 1852 became the first state to pass compulsory school attendance laws. It was not until 1918 that every state required children to receive an education, according to the National Conference of State Legislatures website.
The Los Angeles Unified School District, rated AA- by S&P, offered $290 million of Qualified School Construction Bonds at a yield of 5.98 percent in April. The New York City Transitional Finance Authority, rated AAA by Fitch and S&P, offered a 5.28 percent yield on its 2027 bonds in May, 56 basis points below the Wells Fargo index.
Per-Capita Income
Massachusetts has the third-highest personal per-capita income in the U.S. behind Connecticut and New Jersey, according to U.S. Census data.
The Massachusetts authority's last debt offering was a $450 million issue of Build America Bonds on Dec. 10, with the 30- year securities priced to yield 5.72 percent, 48 basis points below the average yield on the Wells Fargo index on the day of sale. Those bonds last traded on May 28 at a 5.32 percent yield, 49 basis points less than the benchmark.
Following are descriptions of pending sales of municipal debt in the U.S.:
PUERTO RICO HIGHWAY AUTHORITY, which oversees 4,635 miles of highways, plans to reoffer $297.9 million in tax-exempt revenue refunding bonds as soon as next week. The floating-rate securities were originally issued in 1998, maturing in 2026, and 2003, maturing in 2035. The new, fixed-rate bonds are backed by gasoline taxes, a portion of vehicle licensing fees and toll revenue. Jefferies & Co. is leading the group underwriting the deal. (Added June 15)
KENTUCKY HIGHER EDUCATION STUDENT LOAN CORP., which finances loans to college students, plans to sell $224.9 million in tax-exempt revenue bonds as soon as tomorrow. The securities, backed by a specific pool of student loans, are Libor floating- rate bonds whose interest isn't subject to the federal alternative minimum tax. The debt is rated AAA by Fitch and S&P, according to preliminary documents and will be marketed by a group led by Bank of America Merrill Lynch.
© 2009-2012 TaxRates.cc
2011 - 2012 Tax Rate Guide and Tax Help Website
