NYC Bonds

To Our Investor Community:

The month of May was busy across multiple fronts, with the Mayor releasing his Fiscal 2016 Executive Budget, and two New York City bond sales entering the market. The New York City Municipal Water Finance Authority (NYW) sold refunding bonds, refinancing higher coupon bonds to help hold down water rate increases. Also, the City of New York entered the market with the first phase of a $1.3 billion General Obligation (G.O.) plan of finance.

Executive Budget for Fiscal Year 2015

On May 7th, the Mayor released his $78.3 billion Executive Budget for FY 2016, which begins on July 1st. He also released the Four Year Financial Plan for fiscal years 2016 – 2019 and the Ten-Year Capital Strategy for fiscal Years 2016 – 2025. The budget must be approved by the City Council before June 30. The Executive Budget, Financial Plan and Capital Strategy are available on the City’s Office of Management and Budget website. The City Charter mandates that the Comptroller review and comment on the proposed budget. Our review is underway and we expect to release our analysis during the second week of June. In addition the Comptroller is scheduled to testify before the City Council on Tuesday, June 9.

$453 million NYW Bond Sale

During the week of May 18th, NYW entered the market with a $453 million second resolution fixed-rate tax-exempt refunding bond sale. During the one day retail order period, in which individual buyers had priority to purchase the bonds, over $106 million in orders were received.

During institutional pricing NYW received over $387 million in priority orders. Final yields varied by coupon and maturity, ranging from 2.55% in 2025 to 3.85% in 2038 and 3.66% for the term bond. The refunding achieved budgetary savings of more than $105 million, or more than $68 million on a present-value basis. These savings directly reduce the levy needed from water and sewer ratepayers.

The bonds were sold via negotiated sale with Barclays Capital serving as book-running senior manager on the transaction. Citigroup, Ramirez & Co., Inc., and Raymond James served as co-senior managers.

NYW’s second resolution bonds are rated AA+ by Fitch Ratings, Aa2 by Moody’s Investors Service and AA+ by Standard & Poor’s

$1.3 Billion G.O. Plan of Finance

The City also launched a $1.3 billion General Obligation financing plan that included numerous elements: taxable and tax-exempt bonds; bonds to raise new money and to remarket existing debt; and fixed and floating rate bonds, including floating rate notes (FRNs) and variable rate demand bonds (VRBDs). This complexity was driven by the nature of the capital projects we are financing, by the outstanding bonds that needed remarketing, and by a desire to diversify a large bond issue to improve the supply-and-demand pricing dynamic.

On May 29th, the City began a two day retail order period by offering $615 million of tax-exempt fixed rate bonds. During these two days, the City received over $313 million in orders from a broad spectrum of investors including individuals, bank trusts, investment advisors and money managers. During the one day institutional pricing the City received over $384 million of useable orders for the $370 million that was offered.

Final yields on the bonds ranged from 0.40% in 2016 to 3.41% in 2036 for a premium coupon bond and 3.82% in 2037 for a discount coupon bond.

The City also sold $300 million of taxable fixed rate bonds, consisting of two subseries, via competitive bid. The winning bidder for the first subseries of $100 million of bonds maturing in 2019 through 2024 (non-callable) was J.P. Morgan at a TIC of 2.72%. The winning bidder for the second subseries of $200 million of callable bonds maturing in 2026 through 2032 was Citigroup at a TIC of 3.99%.

Additionally, the City converted $50 million of VRDBs to floating rate notes. These FRNs were sold in three series and bear interest at a spread to the weekly SIFMA index of 55, 65 and 70 basis points, respectively, for maturities in 2017, 2018 and 2019.

The negotiated sales were led by book-running senior manager J.P. Morgan with BofA Merrill Lynch, Citigroup, Jefferies, Morgan Stanley, and Siebert Brandford Shank & Co., L.L.C. serving as co-senior managers.

The City will also price $350 million of new money tax-exempt variable rate demand bonds on June 17th bringing the total sale to $1.3 billion.

NYC G.O.’s are rated AA by Fitch Ratings, Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.

Looking Ahead

The New York City Transitional Finance Authority will issue $750 million Building Aid Revenue Bonds during the month of June, with retail priority June 15-16 and institutional pricing June 17. The proceeds from this bond sale will finance new school construction and capital improvements to existing school buildings in the City of New York. New York Water will also borrow money through a bond issue of the New York State Environmental Facilities Corporation to be sold later in June. Details of the transactions will be released closer to the sale dates.

Information on how to buy New York City bonds is available on the Comptroller’s website. You can subscribe on our website 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