NYC Bonds

Monthly Public Finance Wrap-Up: April 2014

To Our Investor Community:
April was a busy month for New York City with the Transitional Finance Authority (TFA) entering the market with both tax-exempt and taxable bond sales.

$960 million TFA Bond Sale

On April 8, the TFA sold $760 million of fixed-rate subordinate lien bonds.  The transaction was comprised in part of $650 million tax exempt fixed rate Fiscal 2014 subseries D-1 and $110 million taxable fixed rate Fiscal 2014 subseries D-2 bonds.  These TFA Future Tax Secured Bonds are backed by the City’s personal income tax revenue and, secondarily, its sales tax revenue.

The TFA received approximately $202 million of retail orders for the tax-exempt bonds during the two day retail order period.  Strong investor demand made it possible to reduce yields by one to four basis points in nine maturities. Final stated yields on the $650 million of tax-exempt fixed-rate bonds varied by coupon and maturity, ranging from 0.34% in 2016 to 4.20% in 2041. The tax-exempt fixed-rate bonds were sold via negotiated sale by the TFA’s financing syndicate, led by book-running senior manager BofA Merrill Lynch.

In conjunction with the TFA’s Subseries D-1 issuance, $110 million of taxable Subseries D-2 subordinate lien bonds were competitively bid in the market. Nine bids were received.  RBC Capital Markets submitted the winning bid with a TIC of approximately 3.12%. The final maturity of the taxable bonds was 2026 and the average life was 7.73 years.

The TFA also sold $200 million of tax-exempt new money adjustable rate bonds as variable-rate demand bonds (VRDBs) on Monday, April 28, 2014, bringing the total sale to $960 million.  The VRDBs were sold in two series of $100 million each with liquidity facilities provided by BMO Capital Markets for the Subseries D-3 bonds and by PNC Capital Markets LLC for the Subseries D-4 bonds.
Standard & Poor’s and Fitch each rate TFA Future Tax Secured Subordinate Lien Bonds at AAA; Moody’s Investor Services rates these bonds at Aa1. The VRDB subseries are rated AAA/A-1 by Standard & Poor’s, AAA/F1 by Fitch and Aa1/VMIG 1 by Moody’s.

New Pension Accounting Standards Implementation

The Governmental Accounting Standards Board (GASB) Statements No. 67 and 68, relating to pension plans’ and employers’ financial reporting, will be implemented by the City’s retirement systems and by the New York City, respectively, in fiscal year 2014 (the year ending June 30, 2014).  GASB 67 sets new rules related to financial statements and disclosures of individual pension plans; while GASB 68 amends standards for financial reporting by employers, such as New York City, whose employees are members of pension plans. New reporting and disclosures consistent with GASB 68 will be reflected in the City’s FY 2014 Consolidated Annual Financial Report (Annual Report) scheduled to be published in October 2014.

GASB 68 impacts reporting, disclosure and supplemental information related to pensions in financial statements but it does not affect City funding requirements, which are determined by New York State law. The City has consistently made its full statutorily required pension contributions, based on then-current actuarial valuations.

Although the City has not yet completed the process of evaluating the impact of GASB 68, the City expects that under certain circumstances the reported funded ratio of its pension plans could be lower under GASB 68 than stated under the current standard. The GASB Statements are quite complex and further information is available on GASB’s website.

Looking Ahead

No bond sales are planned for May, but our calendar will pick up again in June with a large fixed rate General Obligation bond sale.  Dates are subject to change but we currently expect the retail order period to be Monday and Tuesday, June 9 and 10, with institutional pricing on Wednesday June 11.  Please sign up as detailed below for specific sale announcements.

Information on how to buy New York City bonds is available on the Comptroller’s website.  You can subscribe to receive sale announcements and other City publications and reports, including the Comptroller’s Budget Report that will review the May 8, 2014 Mayor’s Executive Budget.  The New York State Comptroller also maintains a website with a preliminary forward calendar for major State and City issuers.

As always, we appreciate your interest in New York City bonds.  Please contact us if you have any questions or suggestions as to how we can improve our investor communications.

Carol S. Kostik
Deputy Comptroller for Public Finance