The Dormitory Authority of the State of New York yesterday approved $1.8 billion of borrowing for school construction and capital improvements throughout the state, while agency officials are also evaluating issuing personal income tax bonds through the federal Build America Bonds program.
DASNY officials declined to give details on any potential BAB deal, including size and pricing, as they are still reviewing the taxable financing instrument. Managing director of public finance Portia Lee said the authority, along with the state's Division of Budget, is considering selling BABs through the issuance of personal income tax or PIT bonds.
"The premise is, if you look at the taxable bonds at the 20-to 30-year mark and you compare them to the tax-exempt bonds - taking away the taxable interest subsidy that's coming in there ... issuers are basically getting a better deal," Lee told board members. "And the amount of that better deal seems to be in the area of 38 to 69 basis points in terms of what we've seen from the large-batch issuances."
Yesterday's $1.8 billion of approved borrowing does include PIT bonds. DASNY anticipates issuing up to $625 million of the debt in late May or early June. Those bonds may be tax-exempt or taxable, fixed or variable-rate debt with maturities out to 30 years. The authority will sell the bonds via negotiation and has yet to select an underwriter on the deal. Hawkins Delafield & Wood LLP is bond counsel on the PIT transaction.
The bond proceeds will help finance mental health facilities throughout the state and also support capital projects for the City University of New York. This will be the first time the state will use PIT bonds for mental health needs.
Lawmakers earlier this month passed the state's $131.8 billion fiscal 2010 budget, which includes changes to prior PIT laws and allows DASNY and the Empire State Development Corp. to sell PIT bonds beyond each authority's mission.
"Financing these projects under the PIT program will result in a stronger credit structure and rating than the mental health resolution bonds and should result in a lower cost of funds," according to DASNY documents.
In addition to the PIT bonds, the board approved up to $1 billion of bonding for school construction projects throughout the state. Officials anticipate selling more than $400 million of tax-exempt bonds around May 27 via negotiation. DASNY has yet to pick a book-runner for the transaction.
The majority of the bond proceeds will roll over bond anticipation notes that are set to mature, with the earliest Bans maturing June 17. The bonds are backed by the full faith and credit of the various school districts, and if necessary the state comptroller has the ability to intercept state aid allocated to the school district to help cover debt service costs.
Board members approved borrowing for Columbia University and the New York Law School. JPMorgan will price $117.2 million of new-money debt in fixed-rate and/or variable-rate mode to help finance infrastructure projects at Columbia, including the construction of a new 188,000 square-foot interdisciplinary science building. Nixon Peabody LLP is bond counsel. The deal will include weekly-rate tender option bonds backed by the school's own liquidity.
Shattuck Hammond Partners/Morgan Keegan Inc. will price $45 million of variable-rate debt for a new academic building for the New York Law School and upgrades and classroom conversions throughout its campus. Nixon Peabody is bond counsel. TD Bank will extend a three-year letter of credit on the bonds.
The board also approved $30 million of variable rate, tax-exempt bonds for Blythedale Children's Hospital in Valhalla. Jefferies & Co. is underwriter on the deal. TD Bank will offer a five-year letter of credit on the floating-rate debt.
Board members held off granting final approval on a $145 million deal for Yeshiva University in New York City as several members wanted to see additional financial information regarding the school before signing off on the transaction. The bond sale includes a potential $1.2 million of net present value savings by refunding the university's $15.8 million Series 1998 bonds.
Yeshiva's investment fund lost $95 million in investments made through Bernard Madoff's company and the university's investment pool has an estimated negative 28.9% return to date in fiscal year 2009. Moody's Investors Service earlier this month downgraded the school to Aa3 from Aa2 and assigned a negative outlook due to a growth in expenses and investment fund losses.