Regional News

N.Y. Looks to Price $1.66B of PIT Debt

New York plans to price two delayed personal income-tax bond deals totaling $1.66 billion  over the next two months.

The state, which updated its bond sale calendar this week, held off on the deals because of the uncertainty surrounding its budget, which lawmakers completed on Aug. 4, 126 days after the beginning of its fiscal year.

“Once updated disclosure is completed, we will be issuing bonds again,” division of budget spokesman Erik Kriss said in an e-mail. The state last week ­released reports on its $136 billion enacted budget and is now updating its annual financial ­disclosure statement.

The New York State ­Thruway Authority plans a retail order period on Sept. 13 for $455 million of tax-exempt PIT bonds followed by institutional pricing Sept. 14.

When the authority’s board approved the deal last month, it was expected to price in August or September, though it was listed on the comptroller’s calendar for this month. 

Proceeds from the Thruway PIT deal will be used to reimburse around 1,900 municipalities for expenditures on bridge, road, and other transportation projects under several state programs.

Michael Sikule, the Thruway’s director of investment and asset management, said the state decided to go all tax-exempt with this sale, rather than use taxable Build American Bonds, because of the difficulty of compliance when dealing so many ­municipalities.

The state’s Division of Budget and the Department of Transportation “are working together to see what changes need to be made so that we can in the future — if BABs are still around — be able to issue BABs at the point,” Sikule said.

Hiscock & Barclay LLP and the Law Offices of Joseph C. Reid are co-bond counsel. Goldman, Sachs & Co is lead manager. First Southwest Co. is financial adviser.

The Dormitory Authority of the State of New York plans to sell two PIT deals in the next two months.

A $1.2 billion offering, originally expected to price in June, was pushed back repeatedly and is now scheduled for October. M.R. Beal & Co. will lead manage the deal. Hawkins Delafield & Wood LLP and Sidley Austin LLP are co-bond counsel.

DASNY also plans to market $133.5 million of qualified school construction bonds, backed by the PIT credit, next month.

With muni yields at record lows, there’s a risk that the deals’ delays could mean missing a window for the lowest possible cost of funds, but market sources said it was unlikely to have much impact.

Kriss said that market timing was not a consideration when scheduling the deals. Muni yields hit record lows on ­Wednesday.

The Municipal Market Data triple-A scale yielded a record-low 2.17% in 10 years, 3.3% in 20 years and 3.67% in 30 years.

“There’s a downside to waiting, but the risks are probably modest,” said Matt Fabian, managing director at Municipal Market Advisors, in an e-mail. “For muni yields to rise much between now and October would take a sell-off in Treasuries on much stronger economic news, a collapse by a major muni issuer counterparty, the default of a state, or a large increase in new issue tax-exempt supply.”

Such events are possible but difficult to predict, Fabian said. More likely is that demand will stay strong, supply low and the economy weak, keeping yields low.

“A modest correction is certainly possible, but in absolute terms, yields should be very low regardless,” Fabian said.

“There is some risk of missing it, but how much would you miss it by in the next three weeks?” said Evan Rourke, portfolio manager at Eaton Vance.

“We’re in the late-August mode where it’s high vacation season both in government and investment banking, so supply is somewhat light. It’s setting the stage for some good demand because fund flows have been strong.”

PIT bonds are the state’s primary debt-issuance vehicle and are sold through five public authorities at the state’s direction. New York has sold $23.45 billion of PIT bonds since the credit was introduced in 2002, according to Thomson Reuters.

Standard & Poor’s rates the PIT bonds triple-A. Fitch Ratings rates them AA.



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