Long Island's Nassau County Selling $207M of GOs, $35M of Notes

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Nassau County, N.Y., is expected on Wednesday to sell $207.1 million of general improvement bonds in a competitive sale and $34.6 million of taxable bond anticipation notes in a negotiated sale.

Ramirez & Co. is underwriter for the notes offering.

The bonds have maturities in 2014 to 2034 and will be subject to early redemption. The notes will mature on April 1, 2013.

Timothy Sullivan, the county’s deputy executive of finance, said $143.6 million of bond proceeds will be used for a variety of capital projects, $43.5 million for termination pay and $20 million for various judgments and settlements.

“The county will be selling the bonds on a competitive basis as required by local finance law, and is issuing taxable bond anticipation notes for sewer improvements as the county considers a public-private partnership for the operation of its sewer system,” Sullivan said.

The Long Island county has just engaged Morgan Stanley as financial advisor and they have recently issued a request for proposals to select an operator for the system. A county committee is reviewing responses, but no decision has been made yet.

A P3 deal would yield a sizable up-front payment to the county, Fitch Ratings said in a report.

“While Fitch views positively the use of the majority of expected proceeds for debt reduction, plans to use a portion for budget relief are a concern,” Fitch said about the sewer system partnership.

In its multi-year financial plan, the county uses $115 million from the sewer system partnership to help close a budget gap in 2013 and 2014.

The rating agency assigns the GO bonds an A-plus rating and the notes an F1-plus. The outlook is stable.

Fitch, as well as Moody’s Investors Service and Standard & Poor’s, cite the county’s limited financial flexibility and continued dependence on non-recurring revenues to balance the budget.

Moody’s rates the bonds A1 with a negative outlook and does not rate the Bans.

The “use of one-time revenues to support operations,” among other factors, is basis for the negative outlook.

Standard & Poor’s, which rates the notes at SP1-plus and the bonds at A-plus with a stable outlook, said the A-plus rating reflects the county’s diverse and affluent economy, strong wealth and income levels, proactive budget management, and improved financial management practices.

In addition to nonrecurring revenues, challenges include substantial projected budget gaps over the next three years and continued budgetary exposure to significant items — including sales tax fluctuations and property tax refund payments.

Since Jan. 26, 2011, the county has been under a control period in which the Nassau County Interim Finance Authority has the power to approve the county’s financial plan, all new contracts greater than $50,000, all borrowings, and may, upon declaration of a fiscal crisis, impose a wage freeze.

Fitch calls NIFA “somewhat more cumbersome” for decision-making — but provides some benefits — while Moody’s lists the authority’s oversight as a strength.

The bonds and notes are secured by the county’s full faith and credit and taxing power, subject to a 2011 New York statute limiting property tax increases. The limit can be overridden by a 60% vote of the county legislature.

Nassau County last issued GO bonds in May 2011 in a competitive offering. Citi won the bid with a true interest cost of 4.7063%.

Yields ranged from 2.45% with a 5% coupon in 2017 to 5.05% with a 5% coupon in 2036. Bonds maturing in 2012 to 2016 and 2020 to 2023 were not officially re-offered.

The bonds offered were insured by Assured Guaranty, with ratings of Aa3 by Moody’s, AA-plus by Standard & Poor’s and AA-minus by Fitch.

According to the preliminary official statement for Wednesday’s bond sale, any credit enhancement will be at the sole option and expense of the successful bidder.

Public Financial Management Inc. is financial advisor on the transaction and Orrick, Herrington & Sutcliffe LLP is bond counsel.

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