NYC Bonds

To Our Investor Community:
After a three month absence from the market, New York City sold bonds in February through three of its credits.  The New York City Transitional Authority (TFA) sold $1 billion of Future Tax Secured fixed-rate subordinate bonds to fund new capital needs; the City offered $800 million of General Obligation (GO) tax-exempt refunding bonds which will provide budget relief to NYC tax payers; and the Municipal Water Finance Authority (NYW) offered both first and second resolution tax-exempt refunding bonds that will provide savings to City water and sewer rate-payers.  In addition, the Comptroller’s Office Bureau of Fiscal and Budget Studies released the City’s quarterly cash report showing record-high cash balances as of December 31, 2015.  We would also like to draw investor attention to a new Municipal Securities Rule Making Board (MSRB) educational guide outlining several alternative ways to buy municipal bonds.
$1 Billion Transitional Finance Authority Sale
During the week of February 8th, 2016 the TFA sold $1 billion of Future Tax Secured (FTS) subordinate bonds.  The transaction included $750 million tax-exempt new money bonds and $250 million taxable new money bonds.

During the two day retail order period, the TFA received over $327 million of retail orders.  During institutional pricing over $332 million of priority orders were received, as well as an additional $901 million of member orders.  Final stated yields on the tax-exempt bonds varied by coupon and maturity, ranging from 0.56% in 2018 to 2.93% in 2042 for a 5.00% premium coupon bond and 3.23% in 2042 for a 4.00% coupon bond. The tax-exempt fixed-rate bonds were sold via negotiated sale by the TFA’s underwriting syndicate led by book-running senior manager BofA Merrill Lynch with Barclays, Goldman, Sachs & Co., J.P. Morgan, Loop Capital Markets LLC, Morgan Stanley, and Wells Fargo Securities serving as co-senior managers on the transaction.

The TFA also sold $250 million of taxable fixed rate bonds, consisting of two subseries, via competitive bid.  Jefferies was the winning bidder for the first subseries of approximately $196 million of bonds maturing in 2018 through 2026, at a true interest cost of 2.321%.  The winning bidder for the second subseries of approximately $54 million of bonds maturing in 2027 and 2028 was FTN Financial Capital Markets at a true interest cost of 2.999%

On February 25th, the TFA also sold $150 million of tax-exempt new money variable-rate demand bonds (VRDBs). The VRDBs have a liquidity facility provided by J.P. Morgan Chase. 

The TFA subordinate lien FTS bonds are rated AAA/AAA/Aa1 by Standard & Poor’s, Fitch Ratings and Moody’s Investors Service  respectively. 
$800 Million General Obligation Refunding
The City of New York sold $800 million of fixed rate tax-exempt general obligation refunding bonds over a three day period.  The two day retail order period began on Friday, February 19 and ended Monday, February 22.  During these two days in which individual investors have priority in purchasing bonds, approximately $251 million of orders were received.   During the one day institutional pricing, $341 million in priority orders were received. Stated yields on the bonds ranged from 0.20% in 2016 to 2.65% in 2033 for a premium coupon bond and 3.09% in 2035 for a discount bond.  The refunding bonds were sold via negotiated sale through the City’s syndicate, led by book-running senior manager Jefferies with BofA Merrill Lynch, Citigroup, J.P. Morgan, Morgan Stanley, and Siebert Brandford Shank & Co., L.L.C. serving as co-senior managers.

The February refunding provides more than $149 million in budget savings to City taxpayers which is more than $99 million on a present-value basis.
The ratings for New York City General Obligation Bonds are AA/AA/Aa2 from Standard & Poor’s, Fitch Ratings, and Moody’s Investor Service, respectively, with “Stable” outlooks from all three rating agencies.
New York City Municipal Water Finance Authority Refunding Plan of Finance
As the month of February was coming to an end, NYW executed a multi-part refunding plan of finance.  On February 25th, NYW competitively sold $191 million of first resolution refunding bonds. This marks the first time since 2009 that NYW offered first resolution fixed rate bonds.  Citigroup Global Markets, Inc. submitted the winning bid for the first resolution bonds with a true interest cost of 3.15%.  This refunding will provide over $57 million budget savings to water and sewer ratepayers over the life of the bonds.
On Monday, February 28th, NYW publicly sold $352 million of second resolution fixed rate refunding bonds.  NYW originally intended to offer these bonds over a two day period, with the retail order period on Monday and institutional pricing on Tuesday; however favorable market conditions allowed NYW to accelerate the transaction and complete the pricing on February 28th.  Over $151 million of retail orders and $440 million of institutional orders were received.  In addition, approximately $86 million of fixed-rate second resolution refunding bonds were directly purchased by Citigroup Global Markets, Inc. bringing the total deal size to $438 million.
The second resolution refunding bonds will provide over $134 million in additional savings to City water and sewer ratepayers over the life of the bonds.
NYW’s first and second resolution bonds are rated AA+/Aa2 by Fitch Ratings and Moody’s Investors Service respectively, while Standard & Poor’s rates first resolution at AAA and second resolution AA+.
City Quarterly Cash Report and Forecast
The Comptroller’s Bureau of Fiscal and Budget Studies released its Quarterly Cash Report for the second quarter of FY 2016 which ended on December 31, 2015. The City recorded an unrestricted cash balance of $11.604 billion, the highest 2Q close on record. The average daily balance in the second quarter has increased in each fiscal year since FY10, reaching $8.831 billion in FY16. Typically, the lowest daily cash balance of a fiscal year occurs during the second quarter.  The report provides greater detail on past and projected City cash levels. 
MSRB Educates Retail Investors on Ways to Buy Municipal Bonds
To help retail investors weigh their options when buying or selling municipal securities, the MSRB has published a new educational guide outlining the several alternative Ways to Buy Municipal Bonds. The MSRB’s guide aims to improve investors’ understanding of the relative advantages and disadvantages of the different methods of buying municipal securities, from working with a full-service broker to trading independently through a self-managed account.  The MSRB’s website provides extensive educational materials for municipal bond investors, including the EMMA system that shows market trades.

Looking Ahead
In March, the City is offering TFA Building Aid Revenue Bonds. Information on how to buy New York City bonds is available on the Comptroller’s website.  There, you can subscribe to receive sale announcements and other City publications and reports.  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