New York City's budget crisis at the beginning of the year had observers worried. But never so worried that it would struggle to place its debt.
Coming off the heels of an oversubscribed general obligation deal, the city plans to price nearly $2 billion of bonds Wednesday through its Transitional Finance Authority.
In the last three years, spreads on New York City bonds have weathered an influx of migrant asylum seekers, a federal indictment of the then-mayor, a $12 billion budget gap and subsequent negative outlooks on its bond ratings. With that track record, market participants say, the TFA deal — which comes with higher ratings than the city's GOs — probably won't hit many problems.
The TFA deal will have both a negotiated and a competitive component.
The negotiated side of the deal is set to consist of $1.5 billion of tax-exempt bonds, maturing from 2027 through 2031 and from 2040 through 2054.
The competitive series of the deal is planned to be $415 million of taxable bonds, maturing from 2031 through 2039, callable in 2036.
Both sides of the deal are set to price on Wednesday, with a retail order period for the negotiated bonds on Tuesday.
Loop Capital Markets is the book running lead manager, with seven co-senior managers and 17 co-managers. PRAG and Frasca & Associates are co-financial advisors. Bryant Rabbino and Norton Rose Fulbright are co-bond counsels, with Hawkins Delafield and Wood and D. Seaton and Associates as co-special disclosure counsels.
The deal is rated Aa1 with a negative outlook by Moody's Ratings, and AAA with a stable outlook by Fitch Ratings and S&P Global Ratings.
Moody's outlook for the deal corresponds with its negative outlook for the city, according to its rating report.
"The negative outlook reflects New York City's updated spending projections, which give rise to larger multi-year budget gaps than previously forecast," Moody's analysts wrote. "That the city projects large and persistent imbalances under still-favorable economic and revenue conditions highlights the extent of its underlying structural budget challenges."
The bonds are secured by New York City's personal income tax revenue; if PIT revenue is projected to be insufficient to cover at least 150% of maximum annual debt service, the city's sales tax revenue will also be allocated for debt service.
The bonds do not require city or state appropriations, according to the investor presentation about the deal; the state comptroller pays the PIT revenue directly to the bonds' trustee.
The bonds have "pretty strong safeguards to prevent overleveraging," said Evercore's Howard Cure.
Cure echoed the TFA's assurances that the debt service doesn't need appropriations: "Really, it's hard to imagine the city getting their hands on the money until debt service is paid."
In fiscal 2025, PIT revenues totaled approximately $28.8 billion and debt service coverage was 7.59x, according to the investor presentation. Annual coverage is projected to be at least 5.08x in fiscal years 2026 to 2030.
The city issued $1.5 billion of general obligation bonds earlier this month. The deal was 6.6 times oversubscribed, according to a statement from Andrew Rothbaum, director of investor relations for the mayor's Office of Management and Budget. Investor demand reduced yields by up to nine basis points, Rothbaum said.
Yields ranged from 2.70% in 2028 to 4.81% in 2052. The 2028 bonds were 14 basis points wider than the AAA scale for that day, according to LSEG data; the 2052 bonds were 44 basis points wider.
RBC Capital Markets was the book-running lead manager for the deal, with seven co-senior managers.
At Wednesday's meeting of the New York State Financial Control Board, city Comptroller Mark Levine discussed the yields on the city's bonds.
"I know there's been some attention paid to a recent increase in bond yields, so let me address that directly. That movement does not reflect an eroding tax base or an expectation of a rating downtrend," Levine said. "The yields simply followed broader market dynamics, and the city's credit remains strong."
John Hallacy, president of John Hallacy Consulting, agreed — New York's spreads have generally sat around 30 basis points wider than the AAA scale lately, he said.
The city's GO bonds are rated Aa2 with a negative outlook by Moody's, AA with a stable outlook by S&P Global Ratings, AA with a negative outlook by Fitch Ratings, and AA-plus with a stable outlook by KBRA.
Moody's, Fitch and KBRA lowered their outlooks on the city's rating to negative from stable in March, in light of its budget dilemma — and in response to Mamdani's budget proposal, which would have raised property taxes and spent much of the city's reserves.
Ahead of the deal, KBRA returned New York's
"I'm proud that despite the challenges we faced at the beginning of the year, the credit rating agencies continue to hold confidence in our city's long-term financial outlook, with our strong ratings maintained," Mamdani testified at the Financial Control Board meeting.
"They're obviously navigating a very challenging situation, and with lots of potential political pitfalls," KBRA analyst Douglas Kilcommons said. "They addressed every one of the reasons the credit was put onto negative outlook to begin with."
Fitch kept the city's negative outlook because of "uncertainty over projected spending savings in the current budget and with respect to future gap-closing measures without using available reserves," according to analyst Kevin Dolan. This uncertainty introduces "potential weakening in the city's financial resilience and reserve position."
The city's enacted budget was balanced, in part, through $6.1 billion of non-recurring revenues, Levine said at the financial control board meeting.
"The out-year gaps are not as large as we projected in early June, but they remain significant," Levine said. "$7.25 billion in FY 28, narrowing $6.84 billion by FY 2030."
The biggest factor that helped New York balance its budget, according to state Comptroller Thomas DiNapoli, was its revenue growth. City fund revenue exceeded adopted projections by $5 billion in fiscal year 2026, DiNapoli said.
"In what has become a common refrain — I'd say a welcome refrain — Wall Street had a very strong year," DiNapoli said, "with profitability supporting business tax growth exceeding 7% and a record-sized bonus pool helping preliminary PIT revenues exceed 12% growth over the prior year."
Although DiNapoli noted the city's reliance on Wall Street creates some risk, its strong economy is good news for prospective TFA investors.
"Really, the biggest risk for this credit is whether or not there's a recession, and there's no recession on the horizon," Hallacy said. "If we were facing a real slowdown in the economy, or there were a lot of layoffs or something like that, and we were approaching recession, I think it'd be a little bit of a different conversation. But we're nowhere near that."
Cure said he expects the TFA's spreads are usually around five to ten basis points tighter than the spreads on New York City GO deals.
Investors will have many more opportunities to buy TFA bonds. According to the investor presentation, the TFA expects to issue approximately $3.7 billion, $8.6 billion, $8.0 billion, and $7.8 billion of bonds during fiscal years 2027 through 2030, respectively, as well as refunding bonds "from time to time."
