The finance committee of New York's Metropolitan Transportation Authority approved a motion to authorize the use of variable rate refunding bonds in connection with targeted refunding bonds.
The full board will consider the proposal on Wednesday.
MTA finance manager Patrick McCoy said Monday that the authority intends to refund $1.29 billion of Series 2005A, 2005B, 2005F and 2006A bonds, issued with a 10-year par call, enabling the MTA to refund the bonds for savings this year.
The authority's refunding policy now does not authorize the use of variable-rate bonds in refundings. The MTA's finance department wants to issue a portion of the refunding bonds as variable-rate securities to refund bonds that already meet policy requirements based on a fixed-rate refunding.
According to McCoy, the target refunded bonds mature from 2019 to 2035, with a heavy concentration of bonds totaling $817.6 million in the years 2029-2035. "It's a significant amount of bonds in what we would consider a difficult part of the yield curve," McCoy told board members.
McCoy added that variable-rate refunding authority is also expected to mitigate the potential impact of rising market volatility seen this year, which can hinder efforts to market a fixed-rate transaction.
The MTA's short-term debt amounts to roughly 8% of its bond portfolio, well under the board-imposed maximum of 25%. The MTA's overall debt totals about $35.6 billion.
McCoy estimated a present-value savings of about $100 million through the planned transactions, which he said have the support of various investment banks and financial advisors. "That's well in excess of our standard, but that's why you do refundings," said board member Jonathan Ballan.
The authority on June 18 priced $500 million of transportation revenue bond anticipation notes, Series 2015A, to finance existing approved transit and commuter projects. The notes are due March 1, 2016.
Hawkins Delafield & Wood LLP was bond counsel and Public Financial Management Inc. was financial adviser.
"We were very pleased with the bidding," according to McCoy, who said the authority had 17 unique bidders who submitted a combined 42 bids. Bids, he said, were accepted in increments as low as $10 million to encourage firms both large and small to participate.
Bank of America Merrill Lynch purchased $360 million in notes, Goldman Sachs & Co. $100 million and FTN Financial, a unit of First Tennessee National, purchased $40 million.
The MTA next month will effect a mandatory tender and remarket $193.1 million of Triborough Bridge and Tunnel Authority general revenue rate refunding bonds, subseries 2005B-3, to replace a standby bond purchase agreement issued by Bank of America NA with Bank of Tokyo-Mitsubishi.
