New York's Empire State Development Corp. is selling $827.5 million in highly rated bonds for institutions Wednesday, with a retail order period on Tuesday.
The bonds will be in three series: series 2013 A-1 will be $556.7 million in tax-exempt revenue bonds; series 2013A-2 will be $69 million in tax-exempt revenue bonds; and series 2013B will be $201.9 million in taxable revenue bonds.
The series 2013 A-1 and 2013 A-2 bonds are being brought to market by negotiation with Wells Fargo Securities serving as the senior manager. The series 2013 B bonds are being sold competitively.
The series 2013 A-1 will mature from 2019 to 2043. The series 2013 A-2 will mature from 2014 to 2026. Finally, the series 2013 B will mature from 2014 to 2019.
The series 2013 A-1 and A-2 will be callable at par on March 15, 2023. The series 2013 B are subject to make-whole optional redemption as more fully described in the preliminary official statement.
Fitch Ratings has rated the bonds AA with a positive outlook. Standard & Poor's has rated them AAA with a stable outlook.
All three series are general purpose state personal income tax revenue bonds.
Series 2013 A-1 are new money bonds. Series 2013 A-2 are refunding bonds.
Nixon Peabody LLP and the Law Offices of Joseph Reid are serving as co-bond counsel. Acacia Financial Group is the financial advisor.
The series 2013A bonds are being issued to finance economic development project costs, grants and loans associated with a number of state organizations and capital projects connected with other state government organizations. The 2013 B bonds are being issued to finance project costs, grants and loans connected to yet other state government organizations.
Fitch offers several explanations for its rating. While the state's payment of the bonds requires annual state legislative approval, the state has incentives to do this approval, wrote Fitch managing director Laura Porter. If the legislature did not give its approval, the legislature is prohibited from using personal income taxes in the revenue bond tax fund for other purposes up to the greater of 25% of annual personal income tax receipts or $6 billion.
In other words the legislature can either get the benefits of paying off its debt or it can default and get no benefit from the money. "Fitch believes that this structural feature effectively eliminates the risk of non-appropriation," Porter wrote.
Personal income taxes make up about 60% of state tax receipts, Porter noted.
New York has a wealthy economy, moderate debt burden, well-funded pensions, and strong financial planning and reporting practices, she wrote.
In explaining S&P's AAA rating, S&P analyst David Hitchcock pointed to the historically pledged personal income tax's very strong 4.03 times coverage of maximum annual debt service. He also noted the limits on the use of the personal income tax revenues pointed out by Fitch. Finally, he mentioned the strong two times additional parity bonds test for new bonds. This test requires that personal income tax revenues for 12 consecutive months out of the past 18 months cover maximum annual debt service for all obligations (regardless of the issuing entity) by at least two times.