After recent downgrades, Long Island, N.Y.’s two financially troubled counties each plan to go to market this week to issue a combined $280 million of debt.
Nassau County, located east of New York City, plans to sell $220 million of revenue anticipation notes in two series on Thursday to meet typical cash-flow needs, according to communications director Brian Nevin.
The notes, which will be secured by the county’s general obligation pledge, were approved last month by the Nassau Interim Financial Authority, the county’s state control board.
Underwriters will be led by Bank of America Merrill Lynch. Bond counsel is Orrick, Herrington & Sutcliffe LLP and the financial advisor is Public Financial Management Inc.
Around $160 million of Series A notes will mature in March 2013 and $60 million of Series B notes will mature the following month. Neither series will be callable.
The notes will be issued in anticipation of sales tax receipts from the county for fiscal 2012, estimated to be $858.4 million.
Fitch Ratings assigned the notes its short-term F1 rating and downgraded Nassau’s outstanding cash-flow notes to F1 from F1-plus.
The agency also revised the outlook on long-term debt to negative from stable, citing concern over the county’s continued difficulty in implementing programs to improve financial stability.
Nassau’s GO bonds were affirmed at A-plus.
Fitch said the short-term downgrade more accurately reflects the county’s market access risks, given the change in the long-term rating outlook.
“Given the county’s reliance on additional borrowing for strong repayment of outstanding cash-flow notes, market access for continued note issuance is especially important,” Fitch analysts said in a report.
Coverage on the repayments are 2.9 times for the Series A notes and 3.7 times for the Series B notes, which Fitch considers strong.
Standard & Poor’s assigned the bonds SP-1-plus, citing the GO pledge as security, strong projected coverage and adequate note structure. The agency rates Nassau’s GOs at A-plus, with a stable outlook.
Standard & Poor’s said the county regularly borrows for cash-flow purposes, and in 2012 cash-flow borrowing is projected to be $460 million, including the Rans and a $240 million series of tax anticipation notes to be issued in December.
Last year, Nassau issued $230 million of Rans in a competitive offering in anticipation of sales tax receipts for fiscal 2011, which totaled around $822 million. The nine-month notes offered 0.80% and 0.83% yields and the 10-month notes offered 0.80% yields.
Moody’s Investors Service does not rate the notes, but has assigned the GOs an A1, with a negative outlook.
Meanwhile, out on the eastern half of Long Island, Suffolk County will issue $60 million of public improvement bonds in a competitive offering on Wednesday.
Hawkins Delafield & Wood LLP is bond counsel and Capital Markets Advisors LLC is financial advisor.
The serial bonds will mature in 2013 through 2026. Bonds maturing after 2020 will be callable.
Proceeds from the bond sale will be used to fund various capital projects in the county, which declared a state of fiscal emergency in March.
In a public improvement bond sale in October, yields ranged from 0.3% with a 2% coupon in 2012 to 4.15% with a 4% coupon in 2028. That’s when the bonds were rated AA by Standard & Poor’s, AA-minus by Fitch and Aa2 by Moody’s.
Since then, all of its ratings have been downgraded.
Standard & Poor’s dropped the rating two notches to A-plus last month, based on the county’s negative financial position, widening structural deficit, and limited action in addressing the deficit. The outlook is stable.
Fitch also cut Suffolk’s bond rating last month to A-plus, with a negative outlook, citing the county’s diminished liquidity and financial flexibility.
The county anticipates issuing $90 million of delinquent Tans in September, $400 million of Tans in December, and $65 million of Rans in May next year, according to Fitch.
The rating agency said it remains concerned about Suffolk County’s increased dependence on short-term borrowing.
Moody’s had downgraded the county’s rating in March, to A1 from Aa2, after the county announced a projected three-year, $530 million deficit and declared a fiscal emergency.
Moody’s analysts affirmed the A1 rating, assigning it to the new bonds, as well as a negative outlook.