Bay State Sells Green Bonds, First in US to Do So

BOSTON-The Bay State will become the first in the nation to sell tax-exempt Green Bonds to directly finance environmentally friendly infrastructure projects, Massachusetts state officials said late last week. The $100 million of Green Bonds are part of a $1.1-billion bond sale that closes on Tuesday.

About $640 million of the sale will be used to refinance existing bonds, according to a release from the Massachusetts treasurer's office. The Green Bonds are being sold as part of $475 million in new capital-construction funding.

Among the beneficiaries of the Green Bond sale will be the Accelerated Energy Program, introduced in January 2012. The AEP aims to reduce energy consumption at 700 state-managed buildings by 20% to 25%, saving the Commonwealth of Massachusetts an estimated $43 million annually. The commonwealth-managed portfolio runs to more than 80 million square feet, with an annual consumption of more than one billion kilowatt hours of electricity, 22 million gallons of heating oil and 46 million therms of natural gas, creating 1.1 million tons of greenhouse gas emissions per year, according to the Massachusetts Executive Office for Administration and Finance.

The sale of Green Bonds will also be used to help fund clean water projects; land acquisition, open space protection and environmental remediation projects; and river revitalization and habitat restoration projects. Since 2008, the World Bank has issued more than $3 billion in bonds of this kind to finance projects to reduce climate change.

Along with funding eco-friendly projects, state officials expect the Green Bonds to appeal to a wider range of bidders, which would increase competition and potentially lower borrowing costs for the commonwealth. They believe the bonds could appeal to pension funds and endowments that are required to dedicate a portion of their holdings to green initiatives, thereby spurring interest among institutional investors that might not otherwise buy Massachusetts bonds.

Investors already have a healthy appetite for Massachusetts bonds due to our highest-ever bond rating, prudent fiscal management and strong economic outlook,” Treasurer Steven Grossman says in a release. “Green Bonds will provide an added incentive for institutions and individuals who want to put their money in environmentally beneficial investments.”

As part of this sale, Massachusetts bonds are being made available to retail investors only in an early-order period that began on Friday and runs through Monday. Pension funds and other institutional investors will be able to buy the bonds on Tuesday. All of the bonds will be general obligation bonds of the Commonwealth and have been assigned ratings of AA+, Aa1 and AA+ by Fitch Ratings, Moody's Investors Service and Standard & Poor's respectively. Interested readers can visit the Commonwealth of Massachusetts Investor Program website.