The New York City Housing Authority’s bid for tens of millions of dollars of additional annual federal subsidies to shore up its financially troubled public housing relies on the issuance of about half a billion dollars of bonds.
Most of that debt, to be issued or reoffered as taxable and tax-exempt bonds by the New York City Housing Development Corp. beginning next week, will be redeemed in just four years under a complicated financing structure.
Final details and approvals of the plan are still being worked out between the NYCHA, HDC, the U.S. Department of Housing and Urban Development, and other parties. The transaction and financing have to be committed to and completed by March 17 in order to meet requirements under the American Recovery and Reinvestment Act that are making it possible.
HDC plans to market the bonds on its open resolution in multiple series through 2012. The transactions will allow NYCHA to add some of its housing developments to those that qualify for federal capital and operating subsidies. ARRA allows new federally subsidized public housing to be created through mixed financings that use a combination of bond financing and federal low-income housing tax credits.
“This deal, while it’s of remarkable scale, in some respects it’s very similar to other deals that we do,” said HDC president Marc Jahr. “Many low-income housing deals we do entail issuing a substantial amount of bonds during the construction period and those bonds are paid down at the conversion to permanent financing by the [tax-credit] equity that comes in.”
The authority owns and operates 334 public housing developments in the city, providing homes for 403,665 low-income residents, according to its Web site. Twenty-one of those developments do not receive direct federal subsidies because they were financed by the city or state rather than the federal government.
Over the past 12 years, both New York City and New York State stopped providing operating and capital subsidies to NYCHA. The loss of funds has in part fueled annual operating and capital deficits of $150 million, according to NYCHA chairman John Rhea. The financing plan would qualify 11,743 units out of 20,143 units in those 21 developments for approximately $65 million of federal operating and capital subsidies annually, Rhea said.
NYCHA plans to transfer ownership of the 21 development to two limited liability companies that it will control. One would partner with a tax-credit investor and the other with a nonprofit. The authority plans to spend $240 million on renovation and rehabilitation. After 15 years, it would have to option to reacquire the developments. The agency did not respond to questions about the financing plan by press time.
The HDC plans to market next week up to $235 million of bonds and to reoffer $110 million of bonds it issued in December.
The new-money bonds will comprise Series 2010A-1 with a par of up to $30 million, Series 2010A-2 with a par of up to $5 million, and Series 2010B with a par of $200 million. The reoffered bonds will comprise Series 2009L-1 with a par of $25 million and SeriesL-2 with a par of $85 million.
Goldman, Sachs & Co. is book-running senior manager on the deal.
Hawkins Delafield & Wood LLP is bond counsel. CSG Advisors Inc. is financial adviser to NYCHA.
The HDC and NYCHA expect Citi to play a pivotal role in the deals, but negotiations with the bank have not been finalized, according to HDC staff. Citi would be the tax-credit investor and partner in one of the LLCs. The agency expects it will directly place up to $500 million of the bonds in three series with Citi, beginning with the Series 2010B bonds. The investment bank is expected to commit to buy up to $150 million of additional bonds in 2011 and again in 2012. Those bonds would be fully redeemed at the end of the construction period in 2014 as will the Series L-2 bonds.
NYCHA last year was awarded grants of more than $400 million under ARRA. It expects that all but $60 million of bonds will be redeemed using a combination of $124 million of federal money, and $212 million of proceeds from the sale of tax credits and bond proceeds. The remaining $60 million of bonds will have maturities of up to 35 years and be backed by revenue from the NYCHA developments, including federal Section 8 voucher payments.