The Dormitory Authority of the State of New York gave final approval to $2.91 billion of bonds, including about $800 million of Build America Bonds on the state's personal income tax credit, at its monthly board meeting yesterday. It also delayed consideration of a qualified school construction bond deal that is expected to price in the fall.
The largest issue approved was for up to $1.43 billion of PIT bonds that will include about $800 million of BABs. The deal will be the first for the state using the taxable BAB program established under the federal stimulus act, which allows an issuer to receive a cash subsidy from the federal government or for the bondholders to receive federal tax credits. The subsidies and tax credits are equal to 35% of the interest paid on the bonds.
DASNY is one of five issuers that sells PIT bonds on behalf of New York, which will use the proceeds to finance education and higher education capital projects, including $600 million for State of New York University facilities as well as economic development grants.
PIT bonds are backed by a 25% set-aside of the state's personal income tax receipts. The bonds will have maturities up to 30 years and are expected to price on Aug. 18.
Merrill Lynch & Co., Loop Capital Markets LLC, and Goldman, Sachs & Co. will lead manage the BAB portion of the deal. M.R. Beal & Co. and Morgan Stanley will lead manage the tax-exempt portion.
Sidley Austin LLP is bond counsel.
The authority removed a QSCB deal from yesterday's agenda at the request of the Division of Budget. Last month DASNY indicated it might sell PIT bonds under the program on behalf of the state to fund an existing school construction grant program, called Expanding Our Children's Education and Learning, or EXCEL.
"It was only pulled because legal counsel needed a little more time to research certain issues before DASNY could advance the applicable documents to their board," Division of Budget spokesman Jeffrey Gordon said in an e-mail. "Our plan has not changed. We would like to issue QSCBs up to our 2009 allocation of $192 million as soon as feasible. Ideally, we will complete the transaction in October."
The bonds pay the investor federal tax credits instead of interest, meaning that the issuer repays only the principal on the bonds. New York City, Buffalo, and Rochester received separate QSCB allocations out of the $11 billion allocated nationally for 2009.
Few QSCB deals have been done since the program was created under the stimulus. Some issuers have been waiting for guidance from the Treasury Department on the stripping of tax credits from the bonds before getting into the QSCB market.
DASNY also approved the refunding of up to $795 million of consolidated service contract bonds issued by the authority as well as by the Empire State Development Corp. and the New York State Housing Finance Agency. The bonds, which are backed by the state, may be tax-exempt and taxable and will have maturities up to 30 years. Citi and Ramirez & Co. will lead manage the deal. Winston & Strawn LLP is bond counsel.
Other bond deals receiving final approval yesterday were $472 million on behalf of the North Shore Long Island Jewish Medical Center, $153 million to finance State University of New York dormitory facilities, and $33.5 million on behalf of United Health Services Hospitals Inc.
The board also approved the conversion of Barnard College's $27.5 million of letter of credit-backed variable-rate demand bonds to unenhanced variable-rate bank qualified bonds that will be privately placed.