NYC Bonds

The month of March brought much good news and one small cloud. In good news, we had a stellar month in terms of bond sales, closed on our first-ever publicly offered floating rate notes, and completed even more refinancings that will lead to significant budgetary savings for taxpayers. On the minus side, the federal sequestration that went into effect March 1 will take a small bite out of subsidies for municipal debt, but will not affect bondholders.

Here’s the good news: In March, we closed our $1.489 billion General Obligation (“GO”) bond sale, which included NYC’s first ever publicly offered SIFMA-based Floating Rate Notes.

Plus, City issuers continued to take advantage of the low interest rate environment to refinance bonds for economic savings. The New York City Health and Hospitals Corporation (“HHC”) issued $112.04 million of refunding bonds, securing more than $36 million in budget savings. The New York City Transitional Finance Authority (“TFA”) sold $1 billion in new money and refunding bonds, while the New York City Municipal Water Finance Authority (“NYW”) saved more than $126 for City rate payers through a $543 million bond sale. For details on both developments, see below.

Here’s the bad: Apropos of sequestration, on March 4 the Internal Revenue Service released details on reductions in Federal interest subsidy payments on Build America Bonds (“BABs”) and other subsidized municipal debt. The subsidy reduction is 8.7 percent. We estimate the cost to the City on its General Obligation debt will be $2 million in the current fiscal year and $7.6 million per year for the next four years.  For the current FY, full subsidy payments for all but the June 1 payment date were received before the sequester took effect. Ultimately, City taxpayers will foot the bill because GO debt is back by the faith and credit of the City of New York.  But in the scheme of the $70 billion annual City budget, the amount is small.

Sequestration, while a pain for municipalities and a drag on the national economy, will not have any effect on New York City’s debt-service payments to bondholders because in the event that the balance in the general debt service fund is insufficient to pay debt service, the City is required to retain additional real estate tax revenues or other cash resources to be paid into the Fund.  The BAB subsidy does not play a role in paying debt service.

$543 Million New York City Municipal Water Finance Authority Sale

NYW priced $543 million Water and Sewer System Second General Resolution, Fixed Rate Tax-Exempt Refunding Bonds on March 12 and closed on March 21.  The proceeds from the Fiscal 2013 DD bonds refunded higher interest rate bonds, providing cost savings to City rate-payers.  The refunding achieved budgetary savings of more than $126 million, or more than $82 million on a present-value basis.  The Water Authority’s all-in cost of funds was 3.98 percent.
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+. 

$112 Million New York City Health and Hospitals Corporation 

HHC issued $112.04 million of refunding bonds that generated more than $36 million in budget savings or $35 million in present-value savings over the life of the bonds.  The refunding produced budgetary savings of $21.8 million and $13.2 million for fiscal years 2014 and 2015, respectively.
The ratings for HHC Health System Bonds are Aa3 from Moody’s Investor Services, A+ from Standard & Poor’s and A+ from Fitch Ratings.

$1 Billion New York City Transitional Finance Authority

TFA sold $1 billion in new money and refunding bonds, which included $650 million in tax-exempt fixed-rate new money bonds, $250 million in tax-exempt fixed-rate refunding bonds, and $100 million in taxable Qualified School Construction Bonds (“QSCBs”).  The QSCBs receive a deep Federal interest subsidy.  The refunding achieved budgetary savings of more than $26 million, or more than $24 million on a present value basis.  

The ratings for TFA subordinate lien bonds are Aa1 from Moody’s Investor Service, AAA from Standard & Poor’s and AAA from Fitch Ratings.

Looking Ahead

Information on how to buy New York City bonds is available on the Comptroller’s website. Future financings typically are announced one to two weeks before the sale date. You can subscribe here 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’s 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