MTA Official Cites 'Perfect Coordinates' for Upsized Bond Sale

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A calm environment atypical for January, low interest rates and the ability to use floating rate notes enabled New York's Metropolitan Transportation Authority to upsize last week's sale of transportation revenue bonds to $850 million from $500 million, according to the agency's finance manager.

"All these perfect coordinates were lined up," Patrick McCoy said in an interview Tuesday after his presentation to the board's finance committee in midtown Manhattan. "The mood was very calm and low-interest. January can be very volatile."

On Jan. 15, the MTA, one of the largest municipal issuers with $34.1 billion of debt, priced $850 million of Series 2015A transportation revenue bonds.

JPMorgan Securities led the transaction, along with co-senior manager Williams Capital Group. Hawkins Delafield and Wood was bond counsel and Public Financial Management Inc. was financial advisor.

"We issued the bonds at historically low interest rates," said McCoy.

The MTA increased its fixed-rate sale to $600 million from $400 million. Bonds priced to yield between 0.12% for the November 2015 maturity and 3.04% for the 2045 maturity, according to Thomson Reuters data.

"That's extremely low," said McCoy. The authority also bumped up its SIFMA floating-rate notes to $250 million from $100 million.

According to McCoy, adding $200 million to the fixed-rate bonds enabled the authority to take advantage of pockets of strong investor demand and reduce costs, while adding $150 million to the floaters enabled it to "fill in" areas of lower fixed-rate demand while maintaining overall level debt service.

The MTA has been using floating-rate notes for roughly three years. The interest rates for floaters adjust weekly, based on a Securities Industry and Financial Markets Association index.

"It's a great product that allows us to stay short on the yield curve," said McCoy. "The floating-rate note enables us to take advantage of strong investor demand and reduce costs."

According to McCoy, the MTA expects to issue $5.6 billion of debt for calendar year 2015 - about $2.2 billion each for new money and remarketing, and just over $1 billion in refunding.

Remarketings will include floating-rate notes, bond anticipation notes, mandatory tender bonds and variable rate demand bonds, for which MTA expects to seek replacement liquidity facilities a remarketing to alternate modes. A refunding will involve bonds callable in November.

Nearly 85% of MTA debt is fixed-rate, according to McCoy. The balance consists of synthetic fixed rate, variable rate and variable rate bond anticipation notes.

Transportation revenue bonds are the authority's primary credit, totaling 60% of overall debt. Other resolutions are Triborough Bridge and Tunnel Authority senior and subordinate bonds (20.2% and 5.1%, respectively) and certificates of participation (0.3%).

Transactions in 2014 included $2.1 million in new-money borrowing; $130 million in refunding, a restructuring of TBTA 2002E-related escrows and $439 million in special obligation bonds; and $1.4 billion in remarking of tendered obligations.

According to McCoy, the authority last year retired $892 million of debt through normal amortization. The net increase in debt was $1.2 billion and bond-financed capital investments totaled $2.53 billion.

The authority received upgrades in February and June from Standard & Poor's on its transportation revenue bonds, from A to A-plus, then to AA-minus. "The raised rating reflects our view of the MTA's enterprise risk score that we view as extremely strong, and the authority's financial risk score that we view as strong," S&P credit analyst Joseph Pezzimenti said in June.

Last January MTA officials pitched S&P for an upgrade after the bond rating agency revised its rating methods for mass transportation entities.

"We got in front quickly," said McCoy.

On Dec. 26, MTA submitted comments on draft rating methods for mass transit enterprises from Moody's Investors Service, which is expected to finalize its new methods early this year. Moody's rates the MTA's transportation revenue bonds A2, while Fitch assigns an A rating. All outlooks are stable.

The MTA Finance Department made presentations last year at the JPMorgan and Bank of America Merrill Lynch conference and hosted an investor tour of the Second Avenue project. Analysts from the four rating companies, including Kroll Bond Rating Agency, participated, officials said.

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Transportation industry New York
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