BOSTON -- Citing an improved state economic forecast, top officials in the Massachusetts treasury said last week the state hopes to return to the competitive new-issue market within the next year.
Largely because of its fiscal ills and deteriorating bond ratings in the late 1980s, Massachusetts has primarily relied on negotiation since 1990 to sell its bonds, according to Securities Data Co.
Issuers often turn to the more costly negotiated approach when faced with the possibility of tepid investor response, market risk, and high interest costs stemming from credit problems such as those experienced by the commonwealth in the last three years. But to Joseph D. Malone, a cost-conscious Republican who took over the state treasury last year, competitive sales are the way to go to market.
Since taking office in Jan. 1991, Gov. William F. Weld, a Republican, has indicated a firm desire to tackle the state's fiscal problems. With its economic forecast improving over the last year, the state has been able to get lower yields on its bonds in recent months.
The state's GO bonds are rated BBB by Standard & Poor's Corp., Baa by Moody's investors Service, and A by Fitch Investor Service.
The state has sold seven long-term GO deals totaling $2.99 billion through negotiated sale since 1990, according to Securities Data. The gross underwriting spread on those deals ranged from $9.57 per $1,000 par value on a deal sold in March 1990 to $7.80 per bond for a deal sold early last month.
The average gross underwriting spread for a negotiated bond deal to date in 1992 is $8.75 per $1,000 according to Securities Data. On a competitive deal, the spread is $8.27.
Ending Massachusetts's reliance on negotiated bond sales and returning to the potentially more cost-effective competitive market has been discussed recently by state officials.
"We talk about it a lot," said Kenneth Olshansky, the state's director of debt management. "The one thing I can tell you I want to make sure of, is when we have our coming-out party, it's going to be good party."
But state officials will not be setting any deadlines.
"As soon as we can prudently or confidently be there, that's when we want to be there," said Thomas H. Trimarco, the state's first deputy treasurer. Two two treasury officials said they expected the state's next competitive GO bond sale would take place within a year.
"Between our office and the [the Executive office for Administration and Finance], we really have a very sophisticated team dealing with the investment banking community, and we think the commonwealth effectively negotiates with the Street," said Mr. Trimarco.
"And I think we do a better job of it now than was done in the recent past. But at the same time, there's no question that we look forward to the day when we can undertake competitive bidding," he added
One possibility, Mr. Olshanky said, is selling bond anticipation notes competitively to test the waters.
"If we could do it by the next major offering, which will be in December, we'd love to do it, but if not by that one, then the next one -- certainly in this coming fiscal year," he said.
