NYC Bonds

To Our Investor Community:

October was an important month for New York City financial information. Comptroller Stringer released the City’s Comprehensive Annual Financial Report (Annual Report) for Fiscal Year 2015, which provides extensive information on the City’s finances including debt, pensions and overall financial health.  In addition, the New York City Transitional Finance Authority (TFA) and the New York City Municipal Water Finance Authority (NYW) both had successful bond offerings.

Fiscal 2015 City Audited Financial Statements Released

The City’s 2015 fiscal year ended June 30, 2015 and as required by the City charter, Comptroller Stringer released the FY 2015 Annual Report, which provides a detailed look at the City’s finances and shows that, for the 35th consecutive year, New York City completed its fiscal year with a General Fund surplus as determined under Generally Accepted Accounting Principles (GAAP).  In FY15, the General Fund had revenues and other financing sources of $78.035 billion and expenditures and other financing uses of $78.030 billion, resulting in a surplus of $5 million.

Below are highlights of the Annual Report and the City’s financial results:

• For the 35th consecutive year, the City of New York was awarded the prestigious Certificate of Achievement for Excellence in Financial Reporting by the Government Finance Officers Association (GFOA);
• Actual FY15 tax revenues were $3.324 billion more than projected at budget adoption due to the strong economic recovery and conservative estimates;
• The City’s Real Gross Product grew by 3 percent in FY15. In addition, the City added 114,600 private sector jobs from June 2014 to June 2015 and unemployment fell to its lowest level since 2008;
• The City, the New York City Transitional Finance Authority and the New York City Municipal Water Finance Authority issued $10.90 billion of long-term bonds to finance the City’s capital program and to refinance higher coupon bonds for interest savings. The refundings will provide $894 million in budgetary savings over the lifetime of the bonds. In addition the Sales Tax Asset Receivable (STAR) Corporation sold $2.04 billion of refunding bonds, generating $649 million of budgetary savings for the City.
• As of June 30, 2015, the City’s five pension funds, in aggregate, had a net position of $179.4 billion, of which $145.7 billion was restricted for Qualified Pension Plans, $3.8 billion for Variable Supplemental Funds, and $28.9 billion for Tax-Deferred Annuity programs.
• Under Governmental Accounting Standards Board (GASB) Statement No. 68, pension assets represent 70.5 percent of estimated pension liabilities; and
• The reported Other Post-Employment Benefits (OPEB) liability decreased by $4 billion, due to slower than anticipated growth in health care costs in FY15.

Bond Sales

The week of October 19th, the TFA entered the market with a $1 billion plan of finance that included $350 of tax-exempt new money, $400 million of tax-exempt refunding bonds and $250 million of taxable new money bonds.

The tax-exempt bonds were sold via negotiated sale using the TFA’s underwriting syndicate led by book-running senior manager J.P. Morgan with Barclays, BofA Merrill Lynch, Goldman, Sachs & Co., Loop Capital Markets LLC, Morgan Stanley, and Wells Fargo Securities serving as co-senior managers.  During the two day retail order period $219 million of orders were received from individual retail accounts, professional retail and bank trusts.  During institutional pricing over $1.4 billion of orders were received compared to the $499 million of bonds offered.  This strong investor demand allowed the TFA to reduce yields by up to 6 basis points in 10 maturities.  Yields on the tax-exempt bonds varied by coupon and maturity, ranging from .219% in 2016 to 3.32% in 2038 for a 5% premium coupon and 3.68% in 2039 for a 3.625% discount bond.

The $250 million of taxable bonds were sold via competitive bid.  The winning bidder for the first subseries of $200 million of taxable bonds maturing in 2017 through 2025 was RBC Capital Markets at a true interest cost of 2.60%. The winning bidder for the second subseries of $50 million of bonds maturing in 2026 and 2027 was Wells Fargo Bank at a true interest cost of 3.50%

Standard & Poor’s rates the TFA subordinate lien bonds at AAA, Fitch Ratings rates the TFA subordinate lien bonds at AAA and Moody’s Investors Service rates the TFA subordinate lien bonds at Aa1.  The VRDBs also carry ratings reflecting the liquidity bank ratings.

On October 29th, NYW sold $250 million of Second General Resolution Revenue Variable Rate Demand Bonds (VRDBs) in three separate series. The VRDBs have liquidity facilities provided by Bank of America, N.A., PNC Bank, National Association and Royal Bank of Canada.

At the time of sale, NYW’s second resolution bonds were rated AA+ by Fitch Ratings, Aa2 by Moody’s Investors Service and AA+ by Standard & Poor’s; The VRDBs also have short-term ratings reflecting the ratings of the various credit banks.

New York Water Rating Upgrade

On November 12th, Moody’s Investors Service announced that their rating on NYW’s second resolution bonds was raised from Aa2 to Aa1. Moody’s cited the Authority’s strong legal structure, rate-setting mechanism and history, bankruptcy-remoteness and financial performance, among other factors. These are discussed in the full upgrade report. This upgrade brings the Moody’s rating in line with those of S&P and Fitch.

Looking Ahead

The New York City Municipal Water Finance Authority will sell $340 million of tax-exempt fixed rate second resolution bonds on November 16 and 17, with bonds offered exclusively to individual investors on the 16th. 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.

On November 12th, the Mayor released the City’s November Financial Plan Update.  The Comptroller’s charter-mandated review is underway and we will report more in the November Investor Wrap-Up.

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