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Green bonds sell like hotcakes

By Sheyna Steiner ·
Wednesday, June 5, 2013
Posted: 10 am ET

On Tuesday, the state of Massachusetts wrapped up the sale of its first-ever "green bonds," which are tax-exempt bonds issued to fund environmentally sound infrastructure projects.

According to the press release, it is the first state to raise money for green projects through municipal bonds.

"Municipalities in other states bond for a host of projects, which might fall under the green umbrella, but this is the first time there is a dedicated account and a host of projects," says Jon Carlisle, communications director for the Massachusetts Treasury.

The green bonds are general obligation bonds which would typically indicate that the money could be spent on any state projects. What makes the green bonds different is that the proceeds from the sale will be earmarked for environmental projects, and the Treasury will disclose how the money is spent going forward, according to Carlisle.

Sales of the general obligation bonds will fund clean water and drinking water projects; energy efficiency and conservation projects in state buildings; open-space protection and environmental remediation projects; and river revitalization and habitat restoration projects.

The bonds are rated AA+, Aa1 and AA+, respectively, by ratings agencies Fitch, Moody's, and Standard & Poor's.

According to The Wall Street Journal, the green bonds were offered at yields between 3.2 percent and 3.85 percent for 20-year bonds.

According to Carlisle, the sale was a success, due in no small part to the environmentally friendly cause.

"We sold $100 million worth of green bonds. It was part of a larger offering," he says. Overall, the state received 183 orders from retail and institutional investors -- 154 orders from individuals and 29 from institutional investors, he says.

Some of the institutional investors were drawn in specifically by the green hook. Some pension funds and other large institutions have requirements to invest part of their portfolios in green investments, specifically.

"In talking to the institutional investors, anywhere from eight to 10 institutional investors had not historically invested in Massachusetts bonds, but they were specifically interested in the green bonds. This was one of the largest retail investing bond deals. The green aspect obviously moved the needle there as well," says Carlisle.

Offering tax-exempt bonds to fund public green projects seems like such a slam-dunk; it would great if other states did the same. Investors win with tax-free yields, and the public benefits.

"I like the meeting point between capitalism and environmental sensitivity -- this might be a good meeting ground," says Donald Cummings, founder and portfolio manager at Blue Haven Capital in Geneva, Ill.

If the green hook saved the state on borrowing costs, that could be even better.

"I think if Massachusetts says we saved ourselves 4 or 5 basis points by calling them green, then that shows there is demand and could make the case that there is demand out there," Cummings says.

What do you think: Would the green angle make you more interested in municipal bonds?

Follow me on Twitter: @SheynaSteiner

Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

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Sheyna Steiner
June 06, 2013 at 8:29 am

What is that even supposed to mean?

June 05, 2013 at 10:13 pm

Hell No!! Do they have Obamma's face on them??