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MBTA LogoActing MBTA General Manager Brian Shortsleeve on Tuesday announced that the agency successfully held its first competitive bond sale in 21 years, issuing $337.3 million in bonds.

By locking into the lowest interest rates in the transit agency’s history, the MBTA will experience more than $150 million in future cash flow savings, putting the T on a more sustainable financial path.

With the strong bond market and high credit ratings, the MBTA decided to offer callable capital appreciation bonds, traditionally sold via negotiated sale, as a competitive offering.  A total of seven bidders participated in the offering.  JP Morgan purchased the callable capital appreciation bonds, which mature from 7/1/2021 – 7/1/2024 and from 7/1/2028 – 7/1/2033 at yields ranging from 1.28% to 2.67%, the lowest yields MBTA has achieved on capital appreciation bonds.  The interest rates on the bonds refunded were from 4.55% to 4.82%.

Following the competitive bid on the capital appreciation bonds, MBTA offered the Assessment bonds to ten prospective bidders.  Morgan Stanley purchased the Assessment Bonds, which mature from 7/1/2024-7/1/2028 and are callable at 7/1/2026, at yields ranging from 1.35% to 2.00%.  The average yield was approximately 1.75%, well below the 4% to 5% yields on the bonds refunded.   The assessment bonds are rated Aa1/AAA.

The newly-issued $119.3 million of assessment bonds and $217.6 million in sales tax bonds will refund prior debt obligations and reduce the authority’s debt service burden. It represents the second step of the MBTA’s three-part plan to lower debt service costs to create additional funds for capital improvement projects.

The bond sales follow a vote by the T’s Fiscal and Management Control Board and MassDOT Board to enact a comprehensive debt strategy in May that included terminating several legacy interest rate swap contracts, refinancing existing bonds, and re-deploying excess debt reserves into the Capital Maintenance Lockbox. The swap terminations will create a more balanced cost of capital for the T, allow for greater investment in capital projects and promote long-term fiscal sustainability.

“This comprehensive debt strategy will give the MBTA greater financial flexibility and strengthen its balance sheet, putting the T on a more sustainable path and capitalizing on historically low interest rates,” said General Manager Shortsleeve.

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