Deal in Focus

New York Readies $830M of GOs

New York State will sell $830 million of new-money and refunding general obligation bonds via competitive bid on Tuesday to help finance transportation and environmental infrastructure needs and generate debt service savings.

The state typically issues new-money GOs towards the end of its fiscal year to reimburse capital spending throughout the year. Fiscal 2011 ends March 31. The Legislature last week began conference committee budget meetings to work out a compromise fiscal 2012 budget that closes a $10 billion deficit.

The GO sale includes $478.9 million of Series 2011A tax-exempt bonds, $21.8 million of Series 2011B taxable bonds, $231.9 million of Series 2011C tax-exempt refunding bonds, and $98.2 million of Series 2011D taxable refunding bonds. Both refinancing series are current refundings.

Bidding will begin at 10:30 a.m. Tuesday on the Series 2011A bonds, with bidding on the remaining series to follow every half hour.

The Series 2011A bonds offer serial maturities from 2012 through 2041 and the Series 2011B taxable bonds will include serial maturities from 2012 through 2021, according to the preliminary official statement. The Series 2011C refunding bonds comprise serial maturities from 2011 through 2020 while the Series 2011D taxable refunding bonds offer serial maturities from 2011 through 2022.

New-money proceeds will help finance capital projects. Programs benefiting from the sale include highway, mass transit, rail, port, and aviation projects, according to the POS.

To help address ­environmental needs, the deal will finance clean water and air projects, solid-waste improvements, and open-space initiatives.

The state will issue $21.8 million of the new-money portion as taxable debt to accommodate private-use concerns for the projects receiving those bond proceeds, according to the comptroller’s office, which will execute the GO sale.

It does not anticipate increasing the new-money size of the deal as the $500 million will satisfy the state’s capital spending needs. The refunding portion could grow or decrease, depending on market conditions.

“The state will monitor market conditions until the time of sale to ensure that all eligible refunding candidates are included in the refunding,” the comptroller’s office wrote in an e-mail response to questions about the GO deal.

The office anticipates the state will grab net present-value savings in the range of 5% to 7% from the current refundings. Refinancing candidates include GO bonds sold in 1964, 1966, 1969, 1971, 1972, 1995, 1996, 1998, and 2001, according to the POS. 

John Mousseau, portfolio manager at Cumberland Advisors, said issuers might look to take advantage of refunding debt sold in 2001 when rates were higher.

“There are two things going on. There were a fair amount of bonds that were issued in 2001 early on that probably can be refinanced now at lower rates by current refundings,” Mousseau said. “And I think that’s across the board with a lot of issuers, but we’re also in a market that is somewhat starved for supply, at least for quality names, depending on how you want to classify New York State. But I think they’ll get a hell of a good reception.”

After more than two months of light municipal issuance, market participants said the sizeable deals on tap for this week give hope that the market might be ready for additional bonding.

Massachusetts is also set to price this week $360 million of new-money GO debt and $78.5 million of GO refunding bonds, the New York City Municipal Water Finance Authority plans to issue a $400 million new-money revenue deal, and the Port Authority of New York and New Jersey has a $225 million refunding loan on this week’s calendar.

Headline risk of municipal defaults and weak public-finance credits seems to be receding a bit into the background, market sources said.

“After a fairly considerable amount of withdrawals from muni mutual funds, what is, in fact, the state of demand for muni product?” said Chris Mier, managing director and chief strategist at Loop Capital Markets LLC. “I would sum it up broadly that the size of this New York State deal may give us some clues as to what kind of condition the market is in general, unrelated to New York State in and of itself.”

Mier added that New York has stronger financials than other states and that the deal should do well.

The comptroller’s office said it anticipates limited participation from mutual funds, yet insurance companies, retail investors, and separately managed accounts, may also purchase the bonds.

New York sold $449 million of GO debt in February 2010, including $216.8 million of taxable Build America Bonds. The tax-exempt Series 2010A for $181.2 million priced with yields ranging from 0.33% with a 2% coupon for debt maturing in 2011 to 4.58% with a 4.5% coupon in 2040, according to the sale’s official statement.

Holders of the Series 2010A bonds include State Street Global Advisers and Van Eck Associates Corp., as of March 16, and EULAV Asset Management, as of Dec. 31, according to Bloomberg LP.

New York has $56.87 billion of state-related debt outstanding, according to the POS. Its outstanding GO debt totals $3.4 billion, according to Standard & Poor’s analyst David Hitchcock.

Moody’s Investors Service rates the Series 2011 GO bond transaction Aa2. Fitch Ratings and Standard & Poor’s both rate New York AA.

New York expects to collect $54.1 billion of total receipts in the current fiscal year, including $23.54 billion of personal income tax revenue, according to the POS.

The state anticipates total receipts will come in at $57 billion in fiscal 2012, an increase of $2.9 billion, with $25.7 billion of PIT receipts.

In the future, the state projects total receipts to increase each year, up to $60.74 billion in fiscal 2015, with PIT receipts accounting for $28.5 billion of revenue.

While Moody’s described New York’s economy as broad and wealthy, it is also “highly cyclical,” due to the financial services industry. The state also has an “above-average dependence” on income taxes, the agency noted.

New York’s pension liability is $52.6 billion, according to the POS, but its pension fund is 94% funded. Its other post-employment benefit obligation is $50.1 billion.

“Their pensions are very well funded and the way they fund their pensions ensures pretty solid pension funding,” said Fitch analyst Laura Porter. “The other side of that is — particularly for local governments — it can make the required pension contributions a stress on a budget.”

The state attorney general is the bond counsel for the transaction. Public Resources Advisory Group is the outside financial adviser.



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