With a new financial team and a brighter outlook from Moody’s Investors Service, the city of Yonkers, N.Y. will come to market with $105 million of bonds, its first sale in over a year.
Sterne, Agee & Leach, Inc. will price the bonds on Tuesday. Hawkins Delafield & Wood LLP is bond counsel.
The deal is made up of about $50 million of refunding bonds and $55 million of new money bonds that are secured by the city’s general obligation pledge.
Yonkers had originally planned a $70 million bond sale, but the city council added some new projects for the new money portion, and the refunding portion was increased due to a more attractive market, according to David Weprin, senior vice president at Sterne Agee.
Proceeds from the new money bonds will be used to finance capital projects in the city, including improvements to firehouses, sewers and parks.
About $25 million are school bonds that will provide financing for the Board of Education’s capital projects.
The remaining $50 million of debt will refund outstanding GO bonds and school bonds.
The city doesn’t have specific savings estimates from the refunding, but is hoping to save at least 2%, according to John Liszewski, the city’s finance commissioner.
Liszewski leads the city’s new finance and budget team, a factor that has been cited by credit rating agencies as a positive for Yonkers, and caused Moody’s to revise its outlook on its low investment grade rating for the city to stable from negative.
The team was assembled after Mayor Mike Spano took office on Jan. 1.
Liszewski said that before this year, the city didn’t have much of a financial team because staffing had been cut dramatically.
“I think Yonkers is finally looking at its finances in a very realistic way,” Liszewski said. “We’re monitoring each and every expenditure, literally on a daily basis. We’re trying to maximize any kind of revenue potential that’s out there.”
Yonkers has had a below average financial position which has been challenged by recurring and operating deficits, as well as budgets that are balanced with the use of one-time revenues.
In Oct. 2011, Moody’s downgraded the city’s bond rating to its current Baa1 rating from A2, due to the city’s declining financial position and trend of structurally imbalanced operations. The downgrade, and outlook revision to negative, applied to $530 million in debt.
Ahead of Tuesday’s bond sale, Moody’s affirmed the Baa1 underlying rating, and improved its outlook.
Analysts said the revision to stable from negative is based on Moody’s belief that the city’s new management team has actively managed the numerous challenges facing the city, including the initiation of a revaluation of the city’s tax base, the first of its kind in over fifty years.
The new school bonds received an enhanced rating of A2.
Standard & Poor’s assigned a BBB-plus rating and stable outlook to the GO bonds and an A rating to the school bonds.
Analysts cited “good financial management practices that include realistic identification of future structural imbalance and plans to maintain reserves at 5% to 7% of expenditures” as a factor in the rating. Others included a low reserve position, ongoing financial pressures, and projected structural deficits.
“Given the fiscal challenges that lie before Yonkers, I am pleased with the latest bond ratings,” Spano said in a statement. “However, we are not out of the woods yet. These ratings only reflect the commitment of my administration to straighten out the fiscal issues that have long plagued our city.”
Liszewski hopes the improved outlook will help people view the city more favorably, particularly in Tuesday’s offering.
Weprin said that there is certainly an appetite for the bonds and expects the deal to meet strong demand.
“The fact that Yonkers hasn’t been in the market in over a year means that various institutions and buyers don’t necessarily have too much Yonkers paper,” he said, adding that this is one of the city’s largest bond sales in recent history.
Yonkers last came to market in Oct. 2011 with $98 million of GO bonds. Yields ranged from 1.83% with a 5% coupon in 2013 to 4.58% with a 5% coupon in 2024.
The bond were rated Baa1 by Moody’s and BBB-plus by Standard & Poor’s. Credits maturing in 2020 through 2024 were insured by Assured Guaranty at Aa3 and AA-plus ratings.
Weprin confirmed that some or all of Tuesday’s deal will be insured, but did not disclose the bond insurer.
