The variable-rate debt in the portfolio of New York's Metropolitan Transportation Authority is well under control, according to its finance director.

Patrick McCoy, in his annual report on such debt to the MTA board, told finance committee members Monday that unhedged and hedged variable-rate debt each account for 6% of the authority's $37.3 billion of bonds outstanding. The authority operates under a 25% cap for this kind of debt.

"We continue to keep variable rate a notable part of our portfolio but not an excessive part of [it]," said MTA finance director Patrick McCoy.


The state-run authority operates New York City's subways and buses, the Long Island and Metro-North railroads and several intraborough bridges and tunnels,

Fixed-rate debt accounts for $31.7 billion, or 85% of the MTA's portfolio. Hedged/synthetic ($2.3 billion), unhedged ($2.27 billion) and term rate ($980 million) account for the balance.

Variable-rate debt includes $2.7 billion of variable rate demand bonds and $1.8 billion of floating rate notes, where the interest rate is based on a set spread to a floating index.

The total excludes $34.5 million of state service contract bonds, $277.7 million of special obligation bonds and $1.06 billion of Hudson Rail Yard Trust obligations. Fixed rate includes $1.5 billion of bond anticipation notes. Term-rate bonds have a fixed rate for a defined period — until the mandatory tender date — but do not have a fixed rate for the entire life of the bonds.

According to McCoy, long-term tax-exempt bond yields remain low ending 2017 at 2.54%. The five-year average, he said, is 3.08%. Short-term rates have increased significantly since early 2016, he added ending 2017 at 1.71%. The five-year average is 0.29%.

"That's the environment that we're in right now and that's why we continue to keep variable rate a notable part of our portfolio but not an excessive part of our portfolio," said McCoy.

The full MTA board is scheduled to meet Wednesday in lower Manhattan.

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Paul Burton

Paul Burton

Paul Burton is the Northeast Regional Editor for The Bond Buyer and the author of the book "Tales from the Newsrooms." He is a sought-after public speaker and has appeared on radio and TV shows, including former CBS News White House correspondent Sharyl Attkisson’s public-affairs program, “Full Measure.”