Moody's Puts Battery Park City Bonds on Watch for Downgrade

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Moody's Investors Service Friday placed the Battery Park City Authority on watch for a possible downgrade, citing an agreement under which the agency would transfer surplus funds to New York State and New York City.

Under an agreement signed on March 29, the city and state over time would receive $861 million of residual funds from the authority to close budget deficits, fund capital spending, and partially fund an affordable housing program.

Moody's rates the BPCA's $466 million of outstanding senior-lien bonds Aaa and $621 million of junior-lien bonds Aa3.

The bonds are secured by revenue from ground lease payments on residential and office properties in Battery Park City, located on the southwestern tip of Manhattan.

Though the surplus is not pledged to the bonds, Moody's said in a press release that it "has considered the balance of residual funds that could be used for BPCA purposes if necessary, subject to city agreement, to be a factor in the BPCA's credit strength and a contributor to the high levels of ratings assigned to the bonds."

The deal hammered out between Gov. David Paterson, the authority, Mayor Michael Bloomberg, and city Comptroller John Liu lets the city and state each sweep $200 million from the authority to help balance their budgets. Additionally, the city would get $261 million for pay-as-you-go capital and $200 million to partially fund a $400 million affordable housing program.

Paterson proposed the sweep last year but Bloomberg and former Comptroller William Thompson Jr., who now chairs BPCA, initially balked. Earlier last week, Liu said he was unhappy with the deal, but it was the only way to get a three-way deal that would free funds for affordable housing.

The affordable housing component of the agreement obligates the city to finance half of the affordable housing program, known as the "421-A fund." The New York City Housing Development Corp. will provide mortgages to affordable housing projects with proceeds from the fund as well as with its corporate reserves.

Requests for comment made to the mayor, comptroller, and state budget offices were not returned by press time.

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