A New York credit created last year to finance certain workers’ compensation costs will finally debut next week. The Dormitory Authority of the State of New York plans to sell $97 million of taxable pledged assessment bonds, which are expected to price Dec. 2.
The bonds are backed by annual assessments made on workers’ compensation insurers and self-insured employers in the state. Nearly all New York employers must carry workers’ compensation insurance for the roughly 8 million people employed in the state.
When DASNY expected to offer its first deal on the credit in November of last year, it authorized up to $1 billion of bonds. The authority received ratings from all three agencies but did not go to market.
In an e-mail Tuesday, DASNY’s managing director of public finance, Portia Lee, said the bonds did not price last year because the program was still under development at the time.
“We have concluded that process and now are ready to access the market,” Lee said.
Part of the deal was originally expected to be tax-exempt, but Lee said it was changed to all taxable due to a tax analysis. DASNY declined to elaborate on her answers.
Hawkins Delafield & Wood LLP is bond counsel. Goldman, Sachs & Co. is book-running senior manager on the deal.
The bonds will be offered with serial maturities from two to 10 years, according to the preliminary official statement.
The state created the special disability fund — also called the second injury fund — in 1916 to remove a disincentive for employers to hire workers, such as war veterans, who had a prior injury.
The fund reduced liabilities to employers and insurers who might have otherwise incurred greater costs if a worker became permanently disabled from the combination of an old injury and a new one. Over the years, the program expanded and costs to employers rose.
A reform act enacted in 2007 closed the fund to new claims in July 2010. The act authorized DASNY to sell bonds to finance up to $4.55 billion of the second injury fund’s liabilities — a quarter of the $18.2 billion of liabilities as of June 30, 2007.
The bond proceeds will be used to fund up-front lump settlements on claims, fund the cost of transferring liabilities to insurers and fund anticipated liabilities.
Analysts said that the total amount of issuance on the credit has dropped to $750 million from $3.1 billion a year ago. That improved debt-service coverage ratios but the ratings remained the same. Standard & Poor’s rates the bonds AA, Moody’s Investors Service rates them Aa2, and Fitch Ratings rates them AA-plus. All have stable outlooks.
Assessments in 2010 totaled $607 million and the collection rate was 99.3% as of Oct. 31, according to the POS. If one insurer goes out of business or does not pay, the assessment on others can be raised to compensate.
“It’s very powerful, the ability to raise the assessment fee,” said Standard & Poor’s analyst David Hitchcock.
The largest payer into the second injury fund is the state insurance fund, which has implicit support from the state, but the ratings are not based on the state’s.
“It’s separate rating from the state rating,” said Moody’s analyst Emily Raimes. “It’s basically rated on the security structure of the assessment mechanism and coverage provided by that and the history of assigning and collecting assessments.”
