NYC Bonds

Monthly Public Finance Wrap-Up: July 2014

To Our Investor Community:

The City’s Fiscal Year 2015 debt program launched with a $1 billion Transitional Finance Authority (“TFA”) new money bond sale in July. A $900 million General Obligation refunding bond sale has also been announced for August.  In addition, the Comptroller’s Office Bureau of Fiscal and Budget Studies released its Comments on New York City’s Fiscal 2015 Adopted Budget, which covers the year beginning July 1, 2014, and the Comptroller announced preliminary pension fund investment returns for Fiscal Year 2014.

$1 Billion TFA Bond Sale

The New York City TFA sold $675 million of tax-exempt Fiscal 2015 Subseries A-1 and $125 million of taxable Fiscal 2015 subseries A-2 Future Tax Secured Subordinate Bonds on Wednesday, July 16, 2014.  For the Fiscal 2015 Subseries A-1, a two-day order period for individual investors was held on July 14th and 15th prior to final pricing on the 16th.  The Fiscal 2015 Subseries A-2 was priced via competitive bid.

The TFA’s Future Tax Secured Bonds are backed primarily by the City’s personal income tax revenue; City sales tax revenues are also pledged to pay these bonds if needed.

During the two-day retail order period, a total of 16 maturities were offered to individual investors and over $300 million in orders were received, with maturities from 2017 to 2027 selling out.  At the close of the institutional order period, the order book contained over $1.175 billion in orders consisting of the $302.015 million of retail orders, $855.380 million of institutional orders, and sealed bids for $18.145 million of bonds maturing in 2016.  At the final pricing, strong investor demand made it possible to reduce yields by up to 2 basis points in twelve maturities. Final stated yields on the $675 million of tax-exempt fixed-rate bonds varied by coupon and maturity, ranging from 0.30 percent in 2016 to 3.67 percent in 2038 for a premium coupon bond and 4.00 percent in 2039 for a par bond. The tax-exempt fixed-rate bonds were sold via negotiated sale by the TFA’s financing syndicate, led by book-running senior manager Morgan Stanley.

The TFA received 10 bids for the $125 million of taxable new money bonds offered. RBC Capital Markets submitted the winning bid with a True Interest Cost of approximately 3.00 percent for maturities ranging from 2020 to 2025 with an average life of 8.65 years.

The TFA also priced $200 million of tax-exempt new money variable-rate demand bonds (“VRDBs”) on Thursday, July 31, 2014, bringing the total sale to $1 billion.  The daily-reset bonds bore an initial interest rate of .04 percent.  The VRDBs have a liquidity facility provided by Mizuho.

TFA Future Tax Secured Bonds are the City’s highest-rated bond credit. 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.

Comptroller’s Comments on FY15 Budget   

The Comptroller’s Budget Report, issued July 28th, found the City adopted a balanced and responsible Fiscal Year 2015 Budget. The Budget Report analyses projected revenues and expenditures to make an independent forecast for the four years of the Financial Plan, Fiscal Years 2015 through2018. Compared to the Mayor’s Financial Plan projections, our office estimates a surplus for FY 2015 (rather than a balance with no surplus) and smaller deficits in Fiscal Years 2016 through 2018.  To read the complete report, please click here.

New York City Cash Position

The Comptroller’s office issued an updated Cash Letter on July 31st.  The City recorded a FY14 closing cash balance of $9.858 billion, the highest year-end closing balance on record, up $1.914 billion compared to a year ago.  The FY14 average cash balance of $7.766 billion exceeded the prior year average by $1.807 billion.  Cash balances change throughout the year. The Cash Letter shows the forecast of expected cash balances through November 30, 2014.

Preliminary Pension Fund Returns

Comptroller Stringer also announced the New York City Pension Funds achieved a 17.4 percent return on investments for FY14, which ended on June 30th. This preliminary, unaudited figure compares to the Actuarially Assumed rate of return of 7 percent, which is used in City budgeting.

New York State Ratings Upgrade

Over the last six weeks the State of New York’s credit rating was upgraded by all three rating agencies to Aa1 by Moody’s, AA+ by S&P and AA+ by Fitch.  Ratings on debt backed by state appropriations were also generally raised.  New York City’s Building Aid Revenue Bonds (“BARBs”), which are backed by State appropriated education aid for capital projects, were upgraded to Aa2 by Moody’s Investor Services and AA by Fitch.  The bonds are rated AA- by S&P.

General Obligation Bond Sale in August

New York City has announced a $900 million General Obligation refunding bond sale for the week of August 11th. There will be a two-day order period for individual investors beginning on Monday, August 11th, with institutional pricing scheduled for August 13th.   The transaction, which will refinance high interest rate bonds for economic savings, will consist of tax-exempt, fixed-rate bonds.  You may download the preliminary official statement here.
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.

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