At least one of the New York state authorities that is expected to participate in theGov. George Pataki's proposed $2 billion floating-rate swap program is solicitingproposals for advisers to help with such deals.
The Empire State Development Corp. late last week said it has solicited proposals frommunicipal market firms to help it in case it does any of the $2 billion of fixed-to-floating interest rate swaps that the Pataki administration has planned for the next twoyears.
The budget division at the beginning of this month asked ESDC and four other stateauthorities - the New York State Dormitory Authority, New York State Housing FinanceAgency, New York State Thruway Authority, and New York State Environmental FacilitiesCorp. - to approve resolutions to do up to $2 billion of floating rate swaps over thenext two years.
In order to do swaps, state law requires that the authorities obtain a fair market valueon the swap rates, which means the authorities must hire swap advisers.
Earlier this month, ESDC's board approved participating in the Pataki administration'sswap plan. The authority has in the past worked with Swap Financial Group as an adviseron synthetic fixed-rate deals it did in conjunction with refunding bonds.
Last week, the state Dorm Authority board also adopted a resolution approving the swapplan but a spokeswoman later said that the authority has not yet made a decision onwhether it will again use Public Financial Management as swap adviser or issue a newrequest for proposals.
Both the HFA and the Thruway Authority said their respective boards have not yet takenup the budget division's request to approve the swap program and, like the DormAuthority, were not sure if they would use existing advisers or seek new contracts.
HFA has worked with Swap Financial and Piper Jaffrey in the past and the ThruwayAuthority worked with Public Resources Advisory Group.
Pataki's budget division also asked EFC to approve the new swap program despite the factthat, unlike the other four agencies, it has not done swaps in the past. An EFCspokeswoman said she was not sure when the board would take up the matter and considerhiring an adviser.
Meanwhile, the state's Local Government Assistance Corp. is looking for a financialadviser with swap expertise and bond counsel, though state budget officials said it isunrelated to the new swap program. LGAC's current financial adviser is PRAG and bondcounsel is Orrick Herrington & Sutcliffe.
ESDC, the Dorm Authority, HFA, LGAC, and the Thruway Authority together did syntheticfixed-rate swaps on $5.2 billion of bonds in the past two years. The Patakiadministration directed the financings to be done in conjunction with refundingtransactions to help lower debt service costs.
As part of a law passed two year ago, the state capped swap exposure to 15% of debtoutstanding, which equals $6.2 billion.
The budget division said it plans to do the $2 billion of synthetic floating-rate dealswith the Wall Street banks that were counterparties on the $5.2 billion of syntheticfixed-rate deals: Bear, Stearns & Co., Citibank Global Markets Inc., Goldman, Sachs &Co., J.P. Morgan Securities Inc., Lehman Brothers, Merrill Lynch & Co., Morgan Stanley,Societe Generale, and UBS Financial Services Inc.
State budget officials said the $2 billion of synthetic floating-rate deals could bedone outside of the swap cap if they are done with banks that the state has already usedin synthetic fixed-rate deals. They said the law permits a swap outside of the cap if itreduces the state's net credit exposure to Wall Street, which is the case with syntheticfloaters.
