Floating-rate notes enable New York's Metropolitan Transportation Authority to take advantage of the short part of the yield curve, its finance director said Monday.
"Where we can be innovative and use floating-rate notes, that's the place for us to be," Patrick McCoy told MTA board members during a finance committee meeting in Midtown Manhattan.
The MTA's $500 million sale of Subseries 2014D bonds Oct. 23 included $100 million of SIFMA floating rate tender notes. The interest rates are tied to Securities Industry and Financial Markets Association interest rates.
McCoy admitted to some investor resistance to longer deals.
Finance committee chairman Andrew Saul noted that while the Treasury rates have spiked down so much, "you seem to have difficulty with the longer terms."
McCoy replied: "You would think that 'so goes Treasury ,' but it's not step by step, especially when the rates go down, down, down like that."
Late last month, the MTA remarked $148 million of Triborough Bridge and Tunnel Authority subordinate revenue variable rate bonds from weekly rate mode to a term rate mode as floating rate notes and redesignated them as five subseries of 2000ABCD bonds.
"We put them out as floating-rate notes with hard maturities. We had positive results," said McCoy. A $19.2 million subseries with a Jan. 1, 2015 maturity provided an interest rate of the SIFMA rate plus 0.005%, he said.
Synthetic fixed-rate debt exposure is less than 10% of the authority's overall debt, McCoy said in his derivatives portfolio report to the finance committee.
The MTA, one of the largest municipal issuers, has $34.4 billion of debt outstanding as of Sept. 30. According to McCoy, traditional fixed-rate debt amounts to $29.4 billion, or 85.4%. Unhedged variable and synthetic fixed-rate debt each total roughly $2.5 billion.
"Our synthetic fixed-rate exposure continues to be manageable," said McCoy.
The MTA's derivatives program consists of interest rate swaps and fuel hedges, the latter to help establish more stability in budgeting the future price of commodities the authority uses.
Moody's Investors Service assigns an A2 rating to the MTA's primary credit, transportation revenue bonds. Fitch Ratings and Standard & Poor's rate them A and AA-minus, respectively.
