An upgrade by Standard & Poor's Corp. on Friday couldn't have come at a better time for the Massachusetts Water Resources Authority, which was putting the final touches on a $275 million bond sale scheduled for this morning.
The upgrade, to A from A-minus, "is definitely a boost for the sale," said Daniel L. Keating, senior managing director at Bear, Stearns & Co., the lead manager for the offering. "There is a lot of demand for this paper out there and I think this upgrade reflects an authority whose credit is on the rise."
The sale will mark the first time the authority's new underwriting team will bring bonds to market and the first MWRA sale since more than $500 million of refunding bonds were sold last April.
It has been a difficult year for the authority, but finance officials there said the improved rating will help them complete their raft of water and sewer projects throughout the state at "much lower than expected" costs.
"It's very pleasing for us to have our efforts realized by Standard & Poor's," said authority treasurer Kenneth Wissman.
The rating agency in a statement attributed the upgrade to the completion of a substantial part of the authority's projects, lower than expected interest rates, the positive political and fiscal effects from several pieces of state legislation, and a corresponding upgrade to the Boston Water and Sewer Commission.
The authority is also rated A by Moody's Investors Service and Fitch Investors Service.
The water and sewer projects date back to the mid-1980s, when the MWRA was charged with financing one of the largest capital projects in the nation, the cleanup of the Boston Harbor, and the construction of the Derr Island Sewage Treatment Plant.
For decades, the harbor was the depository for billions of gallons of human sewage, waste, and other garbage. A authority officials said they are about halfway done with the bonding necessary to complete the projects.
"The size of our capital program will not have to be done completely by the sale of revenue bonds," Wissman said. "We are expecting that in the next couple of years, federal and state monies will help defray some of the costs."
The authority has $1.9 billion in outstanding senior debt.
Wissman said the MWRA projects were initially projected to cost about $6 billio, but now estimates are running closer to $4.7 billion to $4.8 billion. He said as much as $4 billion will be done through bond sales.
Despite the projected cost savings, the authority was roiled this spring by a series of statewide protest about continually rising water and sewer rates for the 43 cities and towns the MWRA services.
Then, as the revolt seemed to be dying down, a undisclosed relationship between Mark S. Ferber -- the authority's financial adviser -- and Merrill Lynch & Co. threw the MWRA's underwriting group into dissarray.
While Ferber was a partner at Lazard, Freres & Co., he was paid $1 million per year for three years by Merrill Lynch to market and promote some of Merrill Lynch's most complicated interest rate swap transaction
At the time, Merrill Lynch was serving as oneof the MWRA's senior underwriters.
Ferber, considered one of the most influential advisers in New England, had served as the authority's financial adviser for more than 10 years before the MWRA Board of Directors fired him in July.
In addition to terminating its relationship with Ferber, the MWRA board disbanded its underwriting team because of the problems. Shortly, after, Ferber was dismissed as vice chairman of First Albany Corp.
The problems created some concerns among potential investors, so Wissman and other authority executives have been on the road for the past week promoting MWRA bonds.
Wissman has been on the investor tour with Keating, MWRA executive director Douglas MacDonald, and MWRA director of product management Walter Armstrong.
"The events of the summer didn't help us, that's for sure," Wissman said. "But we've had eight years of solid fiscal performance behind us and I think we were successful in conveying that message."
Keating said the transition between Wissman and former chief financial officer Philip N. Shapiro has also helped instill confidece in investors.
"I think that the upgrade comes at just the right time," said Robert A. Lamb, president of Lamont Financial Services Corp.,, the authority's co-financial adviser with P.G. Corbin & Co. "In spite of all that has happened this year, there is a real strength of management there."
Although Gov. William F. Weld and state Treasurer Joseph D. Malone recently said the state and its authorities should conduct more of its financing via competitive sale, Wissman said the possibility of a refunding portion precluded the MWRA from selling the current issue competitively.
Uncertain municipal market conditions, especially the impact that a falling Treasury market could have on the escrow requirements of a refunding, have left authority officials uncertain about the final size of the deal.
Keating said thee upgrade improves the prospect of having a refunding portion, but "that is a decision that will be made at the time of sale."
At most, the sale would include $125 million to $150 million refunding bonds, he said.
Wissman said the MWRA will probably undertake a smaller competitive sale early next year. He said the issue would most likely require level debt service over 30 years and contain serial bonds and at leat two term bonds at the long end.
He said some of the shorter serial bonds may be noncallable.