ST executes world’s largest issuance of municipal green bonds

Bonds will support more than 30 miles of light rail extensions on track for 2023; refinancing existing bonds will achieve over $30 million in present value savings

Sound Transit yesterday executed the sale of nearly $1 billion of green bonds that will help fund voter-approved regional transit projects, including construction of more than 30 miles of light rail extensions. The sale represents the world’s largest municipal sale of green bonds, which are a rising trend in the financial industry that offers the ability to invest in bonds that advance environmental sustainability.

“A growing number of investors want to see strong returns for both their portfolios and their planet,” said Sound Transit Board Chair and King County Executive Dow Constantine. “They need look no further than these green bonds, which will fund transportation projects that increase commuters' mobility while reducing reliance on cars.”

Sound Transit’s first issuance of green bonds followed Monday’s announcement by the American Public Transportation Association (APTA) that Sound Transit is one of only two transit agencies nationally to attain the platinum level of participation in APTA’s sustainability commitment. 

The bond issuance is fully compliant with International Capital Market Association (ICMA) Green Bond Principles, validated through an independent opinion commissioned from Sustainalytics. The firm concluded that “investors in Sound Transit green bonds can be fairly confident that their investments will result in positive environmental impact.”

Sound Transit’s credibility as a green bond issuer comes not only from its construction and operation of transit services that are more sustainable than other transportation options. The agency observes formalized and independently monitored sustainability commitments across many areas of day-to-day business, from designing energy-efficient buildings to reducing fleet emissions to increasing recycling and composting.

In addition to APTA’s annual reviews, independent auditors annually evaluate Sound Transit’s compliance with International Organization for Standardization environmental management system criteria (ISO 14001).

“I’m proud of Sound Transit’s issuance of green bonds, which I believe will help grow this segment of the bond market while also reflecting our region’s environmental values and helping meet the agency’s financial obligations,” said Sound Transit Board and Seattle City Council member Mike O’Brien, who advocated for the green bond strategy. “I hope these bonds help to incentivize more organizations to follow the high standards Sound Transit is setting.”

Marketing green bonds is a relatively new development in the financial sector. Environmental advocates have called for expanding it, with moves toward increasingly rigorous protocols. The ICMA Green Bond Principles are widely considered the prevailing standard. While the green bond designation does not necessarily have a direct impact on the pricing of the bonds, a growing number of issuers use the designation to promote awareness of their projects and expand their investor bases. 

The bond sale, assumed in the agency’s long-range financial plans, will generate approximately $600 million in new proceeds to fund voter-approved transit expansions and refinance $398 million of previously issued bonds with higher interest rates, generating present value saving of over $30 million. The sale included fixed-rate bonds at a total interest cost of 3.88% and approximately $150 million in variable rate bonds. 

In issuing the new bonds, Sound Transit’s ratings from Standard and Poor’s and Moody’s remained unchanged at AAA/Aa2. 

The underwriting team of this bond sale includes J.P. Morgan; BofA Merrill Lynch; Citigroup; Goldman, Sachs and Co.; RBC Capital Markets; and Wells Fargo Securities. 

Over the past 14 years, Sound Transit has developed a strong track record delivering mass transit investments. The University Link light rail extension, with new stations on Seattle’s Capitol Hill and at Husky Stadium, is on track to open in early 2016, ahead of schedule and approximately $150 million under budget. Later in 2016, Sound Transit is also on track to open its extension to Angle Lake, one stop further south from the airport.

In 2021, light rail service is scheduled to open to Northgate. By 2023 Sound Transit is on track to extend service further north to Lynnwood, south to Kent/Des Moines and east to Redmond’s Overlake area. The extensions are expected to increase overall weekday ridership to more than 350,000 by 2030.

The Sound Transit Board is working to develop a Sound Transit 3 measure with additional mass transit extensions around the region for voter consideration in November 2016. Information is available at soundtransit3.org.