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September 2015 Monthly Public Finance Wrap-Up

October 24, 2015

To Our Investor Community:

September played host to events both locally and globally. On the local front, the New York City Transitional Finance Authority (TFA) sold over $1 billion in new money bonds for fund the City’s capital program. Globally, the Federal Open Markets Committee (FOMC) met to decide whether to raise the Federal Funds rate for the first time since June 2006.

Transitional Finance Authority 2016 A

The TFA sold over a billion dollars of Future Tax Secured Subordinate New Money Bonds in September. The sale included $750 million of tax-exempt, $250 million of taxable fixed-rate bonds and $150 million variable-rate demand bonds (VRDBs) bringing the total deal size to $1.15 billion.

The $750 million of tax-exempt bonds were sold via negotiated sale using the TFA’s underwriting syndicate led by book-running senior manager Goldman, Sachs & Co. with Barclays, BofA Merrill Lynch, J.P. Morgan, Loop Capital Markets LLC, Morgan Stanley, and Wells Fargo Securities serving as co-senior managers on the transaction. During the two day retail order period, the TFA received $346 million of retail orders and approximately $732 million of orders during the institutional period. This strong investor demand allowed the TFA to lower yields by up to three basis points in seven maturities. Final yields on the tax-exempt bonds varied by coupon and maturity, ranging from 0.55% in 2017 to 3.34% in 2037 for a 5.00% premium coupon bond and 3.74% in 2039 for a 3.625% discount coupon bond.

The $250 million of taxable bonds were sold via competitive bid. The winning bidder for the first subseries of $190 million of taxable bonds maturing in 2017 through 2025 was BofA Merrill Lynch at a true interest cost of 2.71%. The winning bidder for the second subseries of $60 million of bonds maturing in 2026 and 2027 was Wells Fargo Bank at a true interest cost of 3.53%

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.

FOMC Meeting and Interest Rates on Municipal Bonds

For those who are not familiar with the FOMC, it consists of twelve members-the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year. During these meetings, the Committee reviews the current economic and financial condition of the United States. It determines the appropriate stance of monetary policy, and assesses the risks to its long-term goals of price stability and sustainable economic growth.

During their September 17th meeting, the FOMC decided to keep rates unchanged and reaffirmed the current 0 to ¼ percent federal funds rate. They anticipate it will be appropriate to raise the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective in the near term. Please refer to the official FOMC press release for further information.

The actions of the FOMC are important as they an immediate impact on municipal bond interest rates. When investing in fixed income securities, fluctuations in interest rates must be taken into account. The Municipal Securities Rule Making Board (MSRB) has prepared a summary of the impacts of interest rate movement on municipal bond prices and yields. Please feel free to download the summary from the MSRB website

The central bank has two more scheduled policy meetings this year on October 27th – 28th and December 15th –16th.

Looking Ahead

The New York City TFA will be in the market during the week of October 19th offering both tax-exempt fixed-rate new money and refunding bonds. For more information on this transaction please refer to the press release or the preliminary statement. 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

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