In a pioneering move, Quincy, Massachusetts, delved into uncharted waters by issuing $10 million of tax-exempt bonds utilizing blockchain technology. This groundbreaking transaction signals the start of a potential revolution in the municipal bond market landscape, as indicated by the involved parties.
Collaborating with J.P. Morgan, Quincy launched the first bond in the United States on a distributed ledger technology (DLT) platform on Thursday. DLT is a sophisticated system that records transactions across multiple locations simultaneously.
Mayor Thomas P. Koch stated, “The city of Quincy has been nurturing its innovation economy for years, and this marks a natural progression.”
The issuance made use of J.P. Morgan’s cutting-edge application, Digital Debt Service, operating on the bank’s private blockchain-based platform, Onyx Digital Assets.
J.P. Morgan, acting as the sole underwriter, structured the transaction as tax-exempt serial bonds with a final maturity set at seven years.
Interest in blockchain technology has been steadily rising within the municipal sector in recent years. Alphaledger, an emerging firm, has been originating municipal loans and facilitating secondary market trades of digital municipal loans between banks on its platform.
The municipal market comprises two primary lending sectors: municipal bonds, like those issued by Quincy, and municipal loans, which typically cater to smaller, less liquid issuers with community banks as buyers.
Blockchain, a fundamental element of DLT, consists of a secure chain of records (blocks) linked together. These blockchains are programmable and can automate various stages in a bond’s life cycle, including principal and interest payments.
The information stored in a blockchain is highly secure and accessible to all participants, promoting trust among network members and reducing the need for redundant databases.
Mayor Thomas P. Koch underscored, “This initiative aims to leverage emerging technologies to enhance financial inclusion and drive better economic outcomes for our constituents.”
Blockwise Advisors and project consultant John O’Keeffe outlined anticipated benefits from this type of issuance, including lower transaction costs, improved liquidity, expanded access to capital markets, and reduced settlement times in the debt market as long-term objectives of the project.
Quincy’s Chief Financial Officer, Eric J. Mason, and Strategic Asset Manager, Rick Coscia, acknowledge the gradual process of establishing a fully operational primary and secondary DLT bond market. They envision the transition to DLT for bond issuances leading to cost savings, operational efficiencies, and improved outcomes for the city’s residents.
Rick Coscia, Quincy’s strategic asset manager, views the utilization of blockchain technology for municipal bond issuance as a natural evolution in the process. He anticipates benefits such as lower issuance costs, enhanced liquidity, and reduced settlement times over time.
Various entities supported Quincy in facilitating the bond deal, including bond counsel Locke Lord, financial advisor HilltopSecurities, and underwriter’s counsel Orrick Herrington and Sutcliffe.
Quincy’s independent auditors, Jim Powers and Todd Jurczyk of Marcum LLP, along with economic development consultant Dorminson Consulting, played crucial roles in finalizing the deal.
Ian Cain, Quincy City Council President, hailed the project as a historic milestone, positioning Quincy as a global center for public service and financial innovation. He commended the city’s ability to drive innovative value for its residents and the broader economy.
Quincy has actively engaged in the DLT ecosystem by sponsoring Boston Blockchain Week and collaborating with Blockchain R&D initiatives at QUBIC Labs to support local innovation.
Mayor Koch expressed his anticipation for the day when Quincy residents can invest in bonds to support projects within the city, directly enhancing their quality of life.
Quincy holds an AA rating from S&P Global Ratings, reflecting its strong legal authority to issue long-term debt and provide ongoing disclosure to market participants, as highlighted in an August report on a BAN sale.