In the week’s largest municipal bond deal, the Dormitory Authority of the State of New York is expected to sell $887 million of state personal income tax revenue bonds in three series.
Bank of America Merrill Lynch will price the bonds on Thursday, after a retail order period on Wednesday.
The bonds will be structured as serial and term and will be subject to early redemption.
Hawkins Delafield & Wood LLP and Bryant Rabbino LLP are co-bond counsel to the authority.
The $772 million of Series D bonds are being issued to finance capital projects for the State University of New York, facilities for the office of mental health and the office of alcoholism and substance abuse services, various educational grants, and to refund outstanding bonds.
The $54 million of Series E bonds will finance certain voluntary agency facilities for the office of mental health and the $61 million of Series F bonds, which are federally taxable, will finance capital projects for SUNY and refund outstanding bonds.
Standard & Poor’s has assigned its top rating and a stable outlook, citing strong debt service coverage, solid bond covenants, and the strength of the PIT in an economically diverse state of 19.5 million people.
“The AAA rating reflects what we view as very strong 3.97 [times] coverage of future maximum annual debt service, by the most recent fiscal year’s historical pledged PIT revenues,” said analyst David Hitchcock.
The bonds are secured by a pledge of payments, which come from a revenue bond tax fund that receives a statutory allocation of 25% of state PIT receipts.
For fiscal year 2012-13 New York’s PIT receipts are estimated to be $40.3 billion.
“While this tax source has had a cyclical element over time, we believe coverage has remained strong and changes to the rate and base have also helped insulate pledged revenues,” S&P analysts said.
Under New York’s constitution, state funds, including those in the revenue bond tax fund, require appropriation from the Legislature at least every two years. In the event of non-appropriation, the revenue bond tax fund would still continue to accumulate tax receipts, until the fund reaches $6 billion, or 25% of the PIT, whichever is greater.
“Fitch believes that this structural feature effectively eliminates the risk of non-appropriation,” analysts said in a report.
Fitch Ratings assigned a AA rating to the bonds and a positive outlook. In addition to the strong structure, Fitch also cited the PIT as the state’s major revenue source — making up about 60% of state tax receipts.
The state currently has about $25 billion of outstanding PIT bonds issued by various agencies.
DASNY, created in 1944, finances and builds facilities for higher education, health care providers, nonprofit institutions and public agencies.
The agency is one of five authorized by 2001 legislation to issue personal income tax bonds in New York.
