NYC Bonds

To Our Investor Community:

The Bureau of Public Finance started the New Year with financings by both the New York City Transitional Finance Authority (TFA) and Municipal Water Finance Authority (NYW).  We also entered the regulatory dialogue via a letter from Comptroller Scott M. Stringer to federal regulators about a proposed rule that could raise our cost of borrowing.

Liquidity Coverage Ratio – Proposed Rule

As part of the international regulatory response to the 2008 financial crisis, the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation (the “Agencies”) issued a Notice of Proposed Rulemaking that would implement a quantitative liquidity requirement for large, international banks.  The proposed liquidity coverage ratio or LCR is designed to reduce liquidity risk by requiring these banks to maintain a certain percentage of high quality liquid assets (HQLAs), thereby enabling them to better absorb shocks that might arise from periods of financial and economic stress.  The Agencies accepted comments on the proposed rules up until Friday, January 31, 2014.

The Comptroller strongly supports the goal of improved liquidity and resiliency for the banking sector.  Unfortunately, the proposed rule does not include municipal securities as HQLAs.  We expect this will make purchasing and holding municipal securities less attractive to banks, which could increase New York City’s cost of borrowing.  Large banks are significant purchasers and holders of fixed-rate New York City bonds.  Additionaly, they have made direct purchases of floating rate bonds, allowing us to access this cost-effective market segment, and they have provided much needed liquidity support for our variable rate demand bonds.  We will continue to advocate for including investment grade municipal securities in the definition of HQLA. Please use the following link to download a copy of the letter. 

$1.021 Billion Transitional Finance Authority Bond Sale

On January 16, the TFA sold $946 million of future tax secured fixed-rate subordinate bonds. The transaction included $505 million of tax-exempt new money bonds, $350 million of tax-exempt refunding bonds, and $41 million of tax-exempt bonds that were converted from variable rate demand bonds (VRDBs) to fixed-rate bonds.  In addition, the TFA competitively sold $50 million of taxable bonds.
The refunding portion of the sale provided taxpayer relief of over $24 million in budget savings, or more than $22 million on a present-value basis, with future savings discounted back to the sale date.  Most of the savings will occur in FY 2014 and 2015.

During the two-day retail order period the TFA received over $238 million of retail orders for the tax-exempt bonds, and over $2.2 billion in priority orders during institutional pricing.  This strong investor demand made it possible to reduce yields in a majority of the maturities by one to seven basis points. Final yields on the tax-exempt fixed-rate bonds ranged from 0.13% in 2014 to 4.40% in 2040 depending on maturity and coupon, J.P. Morgan led the negotiated underwriting syndicate.

The TFA received a total of 13 bids for the $50 million of taxable new money bonds offered, with US Bancorp being the winning bidder with a TIC of approximately 2.53% for bonds maturing 2018 to 2022.

The TFA also sold $75 million of tax-exempt new money VRDBs on Monday, February 3, 2014, bringing the total sale to approximately $1.021 billion.  Liquidity on these bonds is provided by a standby bond purchase agreement from Barclays Bank, Plc.

Standard & Poor’s and Fitch each rate fixed-rate TFA Future Tax Secured Subordinate Lien Bonds at AAA; Moody’s Investor Services rates these bonds at Aa1.

$351 Million New York City Municipal Water Finance Authority

NYW sold $351 million of second general resolution, fixed-rate, tax-exempt new money bonds via negotiated sale.  The bonds were offered in four maturities with two early maturities being refundable principal installment bonds (RPI).  Yields varied by coupon and maturity, ranging from 0.59% in 2018 to 4.43% in 2047.  Raymond James led the underwriting syndicate.

RPIs are fixed rate serial bonds with short maturities ranging between three and five years.  They can be redeemed at par beginning 18 months prior to their maturity date.  NYW plans to refinance the RPIs into longer maturity bonds prior to their maturity; however it is not required to do so.  If the RPIs are not redeemed prior to budget adoption for the year in which the RPI matures, which is April 1st of the Fiscal Year preceding the RPI maturity year, the full RPI principle must be included in the budget, which could require an increase in system rates.  The par call option is structured to allow a current refunding of the RPI to mitigate this impact on system rates.  Strong demand for the RPIs from both retail and institutional investors allowed NYW to lower yields and increase the size for the two RPI maturities to an aggregate of $110 million from the $50 million originally offered.

Fitch Ratings rates NYW’s second resolution bonds at AA+; Moody’s Investor Service rates these bonds at Aa2, and Standard & Poor’s rates them at AA+.

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.  The New York State Comptroller also maintains a website with a preliminary forward calendar for major State and City issuers.

In addition, the Bureau of Public Finance has expanded its social media presence.  The Comptroller’s office is tweeting some announcements and updates on Twitter, and we have begun to use LinkedIn for news and commentary.  If you wish to connect with us on LinkedIn or wish to view our postings please use the following link or search for NYC Comptroller’s Office Bureau of Public Finance.

Looking Ahead

No bond sales are currently planned for February, but our calendar will pick up again in March with both General Obligation and New York Water sales anticipated.  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