Environmental Finance's Bond Awards 2023

Initiative of the year - social bond; Social project bond of the year: Commonwealth of Massachusetts

As the largest financing sold by any state-level entity in Massachusetts and the largest labelled ESG financing to price in the US municipal market, a historic issuance for the Commonwealth of Massachusetts won two categories in this year's Bond Awards.

At the onset of the Covid-19 pandemic, the Commonwealth mobilised resources to address spiking unemployment claims and manage solvency issues with the Commonwealth's Unemployment Insurance Trust Fund (UITF).

In the event of economic crisis, if a state's unemployment insurance trust fund is depleted, states can receive loans from the federal government known as 'Federal Advances' to support unemployment benefits.

In January 2020, Massachusetts had a UITF balance of approximately $1.7 billion. The Commonwealth fully drained these reserves to pay benefits to unemployed workers and, from June 2020 through April 2021, also borrowed $2.3 billion in Federal Advances.

The $2.7 billion social bond proceeds will repay the outstanding Federal Advances from the federal Unemployment Trust Fund and finance a deposit to the UITF to manage overall employer tax rates and finance unemployment benefits for individuals affected by the socioeconomic impacts of the Covid-19 pandemic.

"This financing sits at the intersection of public policy and finance. It is representative of how debt financings can be strategically used by state governments to manage through challenging circumstances," said Massachusetts state treasurer Deborah Goldberg.

"The credit development process was extensive and thoughtful, requiring coordination and diligence from various agencies of Massachusetts state government and the entire working group. Ultimately, employers in the Commonwealth will benefit from the collective efforts of the team via more manageable near-term costs related to unemployment coming out of the Covid-19 pandemic."

Kestrel conducted an independent external review of the Commonwealth's 2022 Bonds to evaluate conformance with the Social Bond Principles.

Kestrel CEO Monica Reid said: "The federal-state unemployment insurance system and the Commonwealth's Unemployment Insurance Program played a critical role in delivering economic relief to individuals and families experiencing financial hardship during the Covid-19 pandemic. Through our review we found the program to have extraordinary impact, primarily for individuals and families, but also for businesses who benefit from the Commonwealth's ability to manage unemployment tax rates."

Deal highlights:

Issuer: Commonwealth of Massachusetts
Size: $2.7 billion
Maturity: Various tranches from 15 July 2025 to 15 July 2031
Coupon: Various tranches 3.6% to 4.1%
Use of proceeds: Pay off Federal Advances used for unemployment benefits during the Covid-19 pandemic and replenish the UITF
External reviewer: Kestrel
Lead managers: BofA Securities, Jefferies
Credit rating: Aa1, AAA and AAA by Moody's, Fitch and Kroll, respectively