The New York City Transitional Finance Authority plans to market $750 million of triple-A rated subordinate-lien bonds this week, right on the heels of a $1.23 billion general obligation deal from the city earlier this month.
The deal comes as finance officials say they are seeing a steady improvement in economic indicators for New York City.
The TFA will offer $620 million of taxable Build America Bonds to retail investors on Monday and institutional investors on Tuesday. The authority will also competitively price $100 million of traditional taxable bonds Tuesday and offer $30 million of tax-exempt bonds on a date to be determined.
Morgan Stanley will serve as book-running senior manager on the negotiated portion of the deal. Sidley Austin LLP is bond counsel. Public Resources Advisory Group and A.C. Advisory Inc. are financial advisers.
New York City deputy budget director Alan Anders said the deal’s structure would be announced Monday.
The bonds are secured by a lien against city personal income-tax revenue that flows from the New York State comptroller’s office. PIT revenue only goes to the city after bondholders have been paid. The bonds have an additional security of city sales tax revenue if PIT debt-service coverage falls below 1.5 times. The TFA has $16.84 billion of future tax-secured bonds outstanding. Fitch Ratings and Standard & Poor’s rate the bonds AAA, while Moody’s Investors Service rates them Aa1. All have stable outlooks.
The city’s GO sale earlier this month included $775 million of BABs. Yields on the taxable stimulus debt ranged from 3.947 on a 2019 maturity, 155 basis points above 10-year Treasuries, to 5.517 on the longest maturity of 2037, which was 180 basis points above 30-year Treasuries.
New York City plans to be in the market with three deals over the next two months that all have a BAB component, according to the comptroller’s forward issuance calendar. The city plans to market $500 million of bonds through the New York City Municipal Water Finance Authority and $350 million of bonds secured by state school construction aid through the TFA next month. The city plans to end the year with the sale of $750 million of GOs.
While some issuers are rushing to finish deals before bond programs created under the American Recovery and Reinvestment Act either expire or are extended, possibly with lower subsidies, Anders said that is not the case for the city.
“The new money we pretty much evenly space throughout the year,” he said. “We don’t have much room in our schedule to do too much more than we’re doing.”
Office of Management and Budget spokesman Raymond Orlando said the city plans to issue recovery zone economic development bonds in November and December for the first time. The city was allocated $81.1 million of the so-called super-BABs that come with a 45% interest rate subsidy from the U.S. Treasury compared to the 35% subsidy for BABs. RZEDBs also differ in that they must be used in geographic areas designated as economically distressed “recovery zones” by the government that uses them.
The recession officially ended last year, but the recovery has been slow. Unemployment in the city fell to 9.3% in September compared to 10.3% a year earlier, according to state Labor Department statistics. A year ago, the city’s jobless picture was worse than the national average of 9.8%. In September, the city beat the national average of 9.6%. Employment indicators have been uneven, and the city lost a net 14,000 jobs in September.
“It’s a mixed bag,” said New York City Comptroller John Liu. “It’s good news that overall unemployment is headed downward. … There is relative optimism for New York City’s immediate and long-term future.”
Jim Diffley, senior director of U.S. regional service for IHS Global Insight, said that the recovery is “slow everywhere.” “In absolute terms it’s slow in New York as well, but unemployment’s coming down, there are job gains now,” he said. “The city is well ahead of the country, frankly.”
The financial sector came back quickly and the housing bubble didn’t burst as severely in New York City as it did in many other parts of the country, Diffley said.
“Compared to many other growing regions in the country, the slowdown in construction and development has not hit New York City as hard in percentage terms,” Liu said. “We have recognized in New York City that capital construction, long-term reinvestment in our infrastructure is not something that we should be cutting back on even in the recessionary period.”
The city’s debt service is rising rapidly — from a projected $5.35 billion in the current fiscal year to $6.86 billion by fiscal 2014. Liu said the Big Apple has the capacity to handle that.
“The debt-service costs of the city are very much within manageable limits. In fact, almost half of our outstanding debt will be retired within the next 10 years,” Liu said. “There is not a huge tail to the debt we have outstanding currently, which is a major reason why we can afford to embark on an ambitious capital plan.”
The city’s projected growth of a million people over the next 20 years is another a reason why it both needs and can afford its capital program, according to Liu. New York City is home to around 8.3 million people, according to 2008 U.S. Census estimates.
Though Wall Street was hard hit by the recession, shedding 31,300 jobs since January 2008, but the economic slowdown was not as dire as officials expected and the city’s recovery has been quicker than anticipated.
The securities industry in New York lost a record $54 billion during 2007 and 2008, only to break records with a $61.4 billion profit in 2009, according to a report from the state comptroller’s office. Profits remained high in the first quarter but fell in the second, though remaining within historic levels.
“It’s good for New York that the financial industry has rebounded from where it was just a couple of years ago,” Liu said. “Part of it has to do with our own resilience, and part of it has to do with federal assistance. But the real takeaway from the latest statistics and the statistics of the past several months is that yes, we are headed in the right direction overall.”
The office market has been recovering as well. Office space vacancy in New York City increased to 11.6% in the first quarter of 2010 compared to 7.1% in the second quarter of 2008, according to Cushman & Wakefield data. Vacancy rates fell to 10.9% in the third quarter of 2010. By comparison, vacancy rates nationally were at 14.7% in the third quarter of this year, an increase of 4.5 percentage points from second quarter 2008.
The city is also on track for a record 47.5 million of tourists, according to the state comptroller’s office. Hotel occupancy rates fell to 81.6% last year from 85.7% a year earlier, according to Colliers PKF Consulting USA. Year-to-date occupancy rates are up to 84.7%.
“Since the first quarter of this year, we’ve been on a steady upward trend in both occupancies and rates,” said Colliers PKF senior vice president John Fox. “Throughout this downturn, New York has done fairly well in the leisure-visiting portion of the business. … What we’ve really seen [this year] is the recovery has mostly been in the corporate travel segment.”