New York’s Metropolitan Transportation Authority will offer up to $900 million of tax-exempt bond anticipation notes issued in the form of commercial paper under a new program.
The MTA expects to start selling the paper this week. It will be offered to investors in minimum principal amounts of $100,000 and the deal will close on Thursday.
“We haven’t determined what amount we’ll be issuing,” said MTA finance director Patrick McCoy. “As we need money for proceeds, we’ll call up the dealers and issue some paper.”
Issuing commercial paper gives the authority the flexibility to issue as needed rather than using proceeds from long-term bond issues.
The MTA plans to market the notes in four subseries, each with support from a different direct-pay letter of credit bank.
TD Bank NA will provide liquidity for the $100 million Subseries A notes. The notes are rated P-1, A-1-plus, and F1-plus by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, respectively, based on the bank’s creditworthiness and not the MTA’s.
Subseries B, with a par of $250 million, will be supported by Barclays Bank PLC, which caries ratings of P-1, A-1, and F1-plus.
Royal Bank of Canada will provide an LOC for the $350 million Subseries C, which is rated P-1, A-1-plus, and F1-plus.
Subseries D, with a par of $200 million, will have liquidity from Citibank NA and is rated P-1, A-1, and F1-plus.
In July, McCoy told MTA board members that they expected to pay liquidity providers between 70 basis points to 140 basis points on facilities ranging from two to three years. Last week McCoy declined to say what rates were finally negotiated.
The MTA approved the CP program in July to replace an existing $750 million program that uses a credit facility from ABN AMRO Bank NV. That facility expires in December and will not be renewed. The MTA plans to sell up to $765 million of bonds in November to take out that outstanding commercial paper.
The CP is money-market eligible and issued in maturities ranging from one day to 270 days.
“The dealers work with the buyers to find the right maturities for them and that work with us as well,” McCoy said. “It’s really driven primarily by the investor base — what their needs are for their various portfolios.”
The transit agency can roll the debt over for up to five years before fixing it out with long-term bonds.
The new CP program allowed the MTA to cancel a $634 million transportation revenue bond deal that had been planned for this month. The only new-money bond deal planned for the remainder of 2010 is a $300 million Triborough Bridge and Tunnel Authority issuance planned for October that also has a refunding component.
Interest rates on long term debt have been at near record lows. On Thursday last week, Municipal Market Data’s 30-year triple-A general obligation benchmark was at 3.72%
McCoy said the CP program was part of the MTA’s diverse overall debt strategy and he wasn’t worried about missing out on long term rates.
Commercial paper is “an attractive vehicle for us to access the short market,” McCoy said. “Given our size and how frequently we’re in the market, we want to be able to issue long-term bonds and we want to be able to issue short maturity bonds and notes.”
He said rates have lately been between 0.4% and 0.8%, depending on the maturities investors were seeking.
The authority has $31.01 billion of debt outstanding that includes more than $1 billion of bonds with expiring credit facilities in 2011 and more than $1 billion with expiring credit facilities in 2012. The MTA plans to sell $1.64 billion of new-money debt in 2011 that could include CP.
The MTA operates the largest mass transit system in North America, serving New York City and seven counties.