New York Metropolitan Transportation Authority's derivatives program reduces budget risk through interest-rate and fuel-hedging strategies, finance director Patrick McCoy said Wednesday.
"Keeping the variable-rate portfolio healthy is a key," McCoy told members of the MTA board's finance committee on Wednesday at lower Manhattan headquarters.
The authority, one of the largest municipal issuers with roughly $38 billion in debt, has 12 swap agreements with eight counterparties. McCoy said its synthetic fixed rate of 4.18% compares "very favorably" against the 4.04% traditional long-term fixed rate, which includes low rates over the last decade.
The MTA mitigates budget risk through its fuel hedging program, which by dollar cost averages half its ultra-low sulfur diesel expenses.
Nearly 86% of the MTA's portfolio, or $30.1 billion, is in traditional fixed-rate bonds. "That's certainly a good thing, given the low interest-rate environment," said McCoy.
He said the authority manages its interest rate exposure through a combination of low-cost synthetic fixed rate, fixed-rate portfolio management through refundings and reasonable floating-rate debt.
In April, the authority consolidated and novated three interest-rate swaps with UBS AG with a total notional amount of $296.1 million to U.S. Bank and Wells Fargo, with MTA unit Triborough Bridge and Tunnel Authority – commonly known as MTA Bridges and Tunnels – as counterparty.
UBS has been reducing its municipal exposure and agreed to cover the new banks' costs related to the assignments, according to McCoy. "This was a costless transfer on our part to a better result," said McCoy.
Chairman Thomas Prendergast reiterated that the MTA has done no new business with Wells Fargo Securities pending an internal review of the bank's practices in light of its fake-accounts scandal. Last month the authority held Wells Fargo's application as a senior manager off its approved list of bond underwriters.
The MTA's move preceded a wave of actions from other municipal issuers that ranged from a one-year ban to designation of other banks as co-managers.
Prendergast gave no timetable for the so-called responsibility review, but said officials would make a "reasoned decision."
The MTA on Wednesday closed its $632 million sale of Series 2016D transportation revenue refunding bonds, Jefferies was book-running senior manager along with special co-senior managers Academy Securities Inc., Stern Brothers & Co., and Williams Capital Group LP.
Nixon Peabody LLP and D. Seaton and Associated were co-bond counsel and Public Financial Management Inc. was financial advisor.
According to McCoy, the authority also closed on its first draw on a federal Railroad Rehabilitation & Improvement Financing loan, which provided about $146.5 million of expenditures for positive train control, a remote-control system designed to minimize crashes.
