NYC Bonds

To our investor community,

Please find below a summary of our December bond financing and a review of our 2011 activity. In addition, a brief overview of the pension revision proposal and our next edition of the “Chart of the Month” are also included.

Public Finance in December

On December 7th, the New York City Transitional Finance Authority (“TFA”) sold $650 million Building Aid Revenue Bonds including $550 million conventional tax-exempt bonds and $100 million Qualified School Construction Bonds (“QSCBs”). QSCBs are taxable bonds for which the City receives a 100% interest subsidy from the Federal government. The TFA received $266 million of retail orders for the tax-exempt bonds during the two-day retail order period. Due to strong market demand, the institutional order period was accelerated and the TFA received $676 million of priority orders for the remaining $351 million of tax-exempt bonds. The TFA sold the QSCBs via competitive sale and received nine bids. (Read the Press Release)

The City’s debt and swap management team, which includes the Comptroller’s Office and the Mayor’s Office of Management and Budget (“OMB”), drove favorable execution of a scheduled termination of a Total Return Swap. The transaction closed on December 15th with a net payment to the City from the swap counterparty.

Looking ahead to January, the New York City Municipal Water Finance Authority (“NYW”) is scheduled on the New York State Comptroller’s Securities Coordinating Committee forward issuance calendar to sell tax-exempt fixed-rate new money bonds during the week of January 23, 2012. As a reminder, you can sign up to receive bond sale notification emails on the Comptroller’s Public Finance Investor Relations website.

Review of 2011 in NYC Public Finance

New York City and its related issuers sold over $12 billion of bonds in 2011 to fund City capital projects and refinance higher coupon bonds to reduce interest expense for City taxpayers and ratepayers. Of the total sold, $3.5 billion were refunding bonds which produced $289 million of debt expense savings over the life of the bonds, helping to balance budgets without causing higher costs in the later years of the bonds. The total present value savings over the life of the bonds is $208 million.

Consistent with Comptroller John Liu’s push for increasing competition, the City sold its first competitive TFA BARBs transaction, which also included the City’s first competitively sold QSCBs. NYW also sold its first ever competitive bond deal since the Authority started issuing bonds in 1985. New York City built on a 2010 success by conducting a second “bake off” refunding for the General Obligation credit, in which syndicate members competed for the right to negotiate a refunding bond sale.

The Hudson Yards Infrastructure Corporation issued $1 billion of bonds to pay for completing the extension of the Number 7 Subway line to 34th Street and 11th Avenue in the heart of the Hudson Yards Redevelopment Area. The Comptroller’s Office also oversaw the debt issuances for other New York City issuers such as the New York City Housing Development Corporation, New York City Educational Construction Fund and The Trust for Cultural Resources of the City of New York. And together with OMB we actively and successfully managed a $15 billion variable rate bond portfolio and $2.56 billion interest rate swap portfolio through periods of market and credit volatility. New York City terminated, at a profit, two forward starting interest rate exchange agreements entered into by the Dormitory Authority of State of New York on behalf of the City and also favorably executed and closed a scheduled termination of a Total Return Swap.

The Comptroller’s Office together with OMB completed a competitive request for proposal process for financial, pricing, and swap advisors. In total, eight firms were selected to advise New York City and its related issuers on capital market transactions. (Read the Press Release) Firms selected include both veteran advisors to the City and firms that have not previously done this work for the City. Three of the firms are minority and/or women-owned businesses and one is a service-disabled veteran owned firm. In addition, the Comptroller’s Office introduced an enhanced Investor Relations-focused Public Finance section of its website.

Budget Report – Concerns about Europe; a Pension Revision Proposal

On December 15th, the Comptroller’s Bureau of Budget released the annual State of the City’s Economy and Finances Report, which warns of the risks that the City faces from a European debt crisis.In addition, the Expenditure Analysis section of the Report discusses the potential financial impact on the City of changes in pension fund actuarial assumptions and methodologies. The Chief Actuary of the City’s Retirement Systems outlined in December proposed changes in calculating the employer contributions to the five City pension funds. The changes would be implemented in this current fiscal year 2012, and based on the preliminary report from the Actuary, the costs would be within the $1 billion budgeted reserve for actuarial changes.

Proposed changes include reducing the assumed earnings rate from 8% to 7% and replacing the current actuarial cost method. The next step in the process is for the Actuary to finalize his proposal and present again to each pension fund Board of Trustees for a vote, which will likely take place by February 2012. If the pension fund boards approve the proposal, it will go to the State legislature for enactment. You can sign up to receive the Comptroller’s Budget Reports by emails on the Comptroller’s Public Finance Investor Relations website.

“Chart of the Month” – Nation and NYC Experiences a Drop in Issuance in Calendar Year 2011 Monthly Chart

The municipal bond market as a whole experienced a sharp drop in issuance volume in calendar year 2011 to the lowest amount of issuance since 2001. In 2011, $295 billion of municipal bonds were issued, a 32% decline from the $433 billion issued in 2010. New York City and its related issuers experienced a smaller 15% decrease in issuance with $12 billion issued in calendar 2011 compared to $14 billion in 2010. However, the City budgets and borrows on a fiscal year basis (July1 to June 30), and New York City issuers had only a slight 1.6% decrease in issuance in Fiscal Year 2011 compared to Fiscal Year 2010, with borrowings decreasing from $13.8 billion to $13.6 billion. We expect City borrowing to pick up in the second half of Fiscal Year 2012 although refunding bond amounts are always dependent on market conditions.

As always, we welcome your feedback and suggestions on how we can make our site more useful for our investors. Thank you for your interest in New York City Bonds.

Happy New Year,

Carol Kostik
Deputy Comptroller for Public Finance