Nonprofits in New York City that have been stuck with high interest rates on their variable-rate bonds issued by the New York City Industrial Development Agency could have the chance to refund that debt.
The New York City Capital Resource Corp. board last week approved an amendment to its incorporation documents that will allow it to refund bonds sold by the IDA for civic facilities on behalf of nonprofits.
IDAs in New York have been unable to issue bonds on behalf of nonprofits since the law allowing those transactions expired on Jan. 30. The CRC amendment sunsets in December 2009. The amendment is subject to approval by the Attorney General's office.
"Some of these entities might be under pressure because they have variable-rate demand bonds outstanding and the notion of a straight refunding into fixed rate could help them," said Roosevelt & Cross Inc. senior vice president and manager Herman Charbonneau.
"We support their proactive action to help reduce the cost of borrowing for a number of very important nonprofit institutional borrowers," said Brian McMahon, executive director of the New York State Economic Development Council, a trade group representing IDAs.
The change would help out borrowers like the College of Mount St. Vincent which sold $7.4 million of auction-rate securities through the IDA in 2006. Interest rates on those bonds spiked in mid-February to 11.5% from 4.3% at the beginning of the year when the ARS market began to collapse. Despite volatility in their resets since February, auctions on those bonds didn't fail until Sept. 30 and they reset to 12%.
The New York City Economic Development Corp., which oversees both the IDA and CRC, said in a press release that 50 borrowers could benefit from the change. EDC spokeswoman Libby Langsdorf declined to identify any of the borrowers, but said refinancings could begin as soon as January.
The IDA has issued $998 million of variable-rate bonds on behalf of nonprofits since 1998, according to Thomson Reuters data. Three institutions have outstanding ARS issued by the IDA: College of Mount Saint Vincent; the Churchill School and Center for Learning; and New York Law School.
New York Law School has been successful at pushing down interest rates on its $135 million of ARS by bidding on them after they failed at auction in February.
Other institutions such as Spence-Chapin Services to Families and Children, an adoption agency, and the Auditory/Oral School of New York which saw their variable-rate demand bonds spike last month from below 2% to 7.9% and 8.5% respectively on Sept. 25. Those rates have since reset in the 3%-4% range.
The CRC board nixed a proposed amendment in June that would have allowed the CRC to issue bonds in place of the IDA. The New York City comptroller's office, which effectively has a veto on the CRC board, objected to the earlier amendment because it would have been permanent and would have allowed the CRC to issue bonds that wouldn't have been subject to new rules that could come out of negotiations in the state Legislature.
The New York Assembly and Senate have been deadlocked over dueling IDA reform legislation in which both seek greater transparency. The Senate has objected to an Assembly bill that would require prevailing wages to be paid to workers who build projects financed through IDA bonds.
The Assembly bill's sponsor, Sam Hoyt, D-Buffalo, said that there has not been any movement or "significant discussion" between the Senate and the Assembly over a compromise in recent months.
McMahon said that his organization was pushing the governor's office and legislative leaders to include an IDA extension in a special legislative session on Nov. 18. The organization has identified $2.3 billion of new projects that are on hold because of the expiration of the law.