The use of 40-year bonds to retire $300 million of bond anticipation notes received favorable reaction in the capital markets, said the finance director of New York's Metropolitan Transportation Authority.
"We used a 40-year bond for the first time," Patrick McCoy said of the MTA's $275 million sale of transportation revenue bonds on March 11."Interest was tepid at first, but we had the benefit of a positive shift in the markets later in the day."
The Series 2015B bonds took out notes issued by Merrill Lynch & Co. and KeyBank, McCoy told the MTA board's finance committee on March 23 in lower Manhattan.
Bank of America Merrill Lynch led the March 11 transaction, which attracted $136 million of retail orders. "It was a very attractive issuance," said McCoy.
Co-senior managers were Citi, Keybanc Capital Markets Inc. and the joint women-owned business enterprise team of Duncan-Williams Inc. and Oppenheimer & Co. Nixon Peabody LLP was bond counsel and Public Financial Management Inc. was financial advisor.
According to McCoy, MTA officials structured the bonds as 40-year level debt-service bonds with the average life of 26.8 years to better match the long average useful life of the assets [38.7 years] the bonds were financing long term. By comparison, he said, the average annual debt service on the Series 2015B bonds is roughly $1.165 million lower than the average annual debt service on a 30-year level debt service structure.
The all-in true interest cost was 4.29% and the average coupon was 4.93%, said McCoy. Moody's Investors Service rated the bonds A2, while Standard & Poor's and Fitch Ratings rated them AA-minus and A, respectively.
McCoy said the MTA will effect a mandatory tender in April and remarket $50 million of Subseries 2012A-3 transportation revenue bonds on a competitive basis, in advance of its current interest rate period's expiration date of May 15.
