Oyster Bay, New York, is testing the bond market with its first large deal after being hit with a federal securities fraud lawsuit late last year.
Oyster Bay is slated to sell $153.2 million of public improvement serial bonds in a competitive deal Thursday, nearly six months after the Securities and Exchange Commission brought charges against New York State’s fourth-most populous township.
The SEC suit alleges that the town and former town supervisor John Venditto defrauded investors by hiding the existence and potential impact of side deals with a businessman who owned and operated restaurants and concession stands. The town failed to disclose loan guarantees totaling $20 million during 26 securities offerings it issued between August 2010 and December 2015, according to the SEC.
Matt Fabian, a partner at Municipal Market Analytics, said he does not expect the SEC case to play too much of a role in Thursday’s transaction because the suit relates to disclosure instead of credit quality.
Oyster Bay was rated in junk territory before S&P Global Ratings upgraded the Long Island town in March one notch to BBB-minus, citing improved budgeting practices.
“The SEC challenges are not a direct impairment of Oyster Bay’s policies,” said Fabian. “It is likely however that there will be some penalty because there is event risk with the chance that more news could come out related to the lawsuit.”
Thursday’s deal received low investment grade ratings of BBB-minus from S&P and Baa3 from Moody’s Investors Service. The town has made recent strides toward improving its past fiscal challenges, wrote S&P credit analyst Victor Medeiros.
“The town has taken positive steps to stabilize liquidity, restore structural balance in its main operating funds, and begin replenishing its accumulated negative reserve balance," Medeiros wrote. The town has about 290,000 residents.
Syracuse, N.Y.-based Fiscal Advisors & Marketing is financial advisor for the sale, which will be used to permanently finance $123.6 million of bond anticipation notes sold in 2016 and 2017 that financed various capital projects. The town is also planning to pay off $4.9 million of outstanding BANs with cash on hand.
Oyster Bay officials did not immediately respond to a request for comment about bond sale. Town Supervisor Joseph Saladino proposed a budget last year aimed at cutting outstanding debt from $763 million to $628 million.
Oyster Bay received a cold reception from the bond market in February 2016 for a $99.1 million BAN deal that was priced in junk territory with a 1.75% yield just two days after Moody’s announced it was withdrawing the town’s rating because Oyster Bay had failed to provide 2014 audited financial statements.
Fabian said investors should be more interested in Oyster Bay paper this time around with finances more stable and lighter volume than two years ago.
“It’s such a supply-starved market,” he said. “These are very different conditions than 2016.”