New York plans to market its second qualified school construction bond deal next week with a $133.5 million offering on its personal income tax credit.
The Dormitory Authority of the State of New York expects to price the taxable bonds — the fourth QSCB deal in the state since the program was created last year under the American Recovery and Reinvestment Act — on Sept. 15.
The state plans to use the bond proceeds to fund capital grants to school districts under the state’s Expanding Our Children’s Education and Learning program.
Goldman, Sachs & Co. will underwrite the bonds. Harris Beach PLLC is bond counsel. Public Financial Management Inc. is the financial adviser on the deal.
The bonds are expected to be “structured as a single bullet maturity for 2027 based on market appetite for long bonds and to maximize the benefit of interest rate subsidy,” said DASNY executive director Paul Williams Jr. in an e-mail.
The bonds will be subject to a make-whole extraordinary mandatory redemption in 2013 if all the proceeds have not been used within three years of issuance and the Internal Revenue Service has not granted an extension to that time frame. They will also be subject to a make-whole extraordinary optional redemption if they lose QSCB status for reasons outside of DASNY’s control.
QSCBs were slow to take off, with issuers selling $2.61 billion of the bonds in 2009, according to Thomson Reuters. The bonds were intended to provide interest-free debt for school districts by selling a tax-credit to investors that was equal to the lesser of the interest rate of the bonds or daily rates set by the Treasury Department for municipal tax-credit bonds.
Lack of investor interest led many issuers to add supplemental coupons or sell the bonds at discounts.
In October 2009, DASNY sold $58.6 million of QSCBs secured by the PIT credit at a discount. The bonds priced at 86.38 with a 5.8% tax credit and had a single, 2025 maturity.
In March, President Obama signed into law a jobs bill that allowed issuers to receive a direct subsidy from Treasury on their QSCBs rather than selling the tax credit to investors. Issuers have sold $3.77 billion of QSCBs to date this year.
Goldman was the underwriter on DASNY’s first QSCB deal.
“The same underwriter was used due largely to the complexity of diligence on the deal and the short turn around time,” Williams said. “Also [Goldman Sachs] had performed well for DASNY on the last deal.”
The federal government allocated a total of $370.8 million of QSCBs to New York in 2009 and 2010. New York City, Buffalo, and Rochester, which have large school districts, received separate allocations.
The New York City Transitional Finance Authority this year sold $397.1 million of QSCBs in two deals.
The deal will also be the state’s first PIT deal since May. The state delayed two large PIT deals due to its late budget, which lawmakers completed on Aug. 4, 126 days after the beginning of its fiscal year.
The New York State Thruway Authority plans to market $455 million of PIT bonds next week and DASNY plans to sell $1.3 billion next month.
The state’s PIT credit, secured by a pledge of 25% of personal income tax revenue, is New York’s main vehicle for issuing state backed debt.
New York has sold $23.45 billion of PIT bonds since the credit was introduced in 2002, according to Thomson Reuters.
Standard & Poor’s rates the PIT bonds AAA. Fitch Ratings rates them AA.