The New York Municipal Bond Bank Agency plans to market $50.7 million of bonds on behalf of five counties next week in its third pooled offering utilizing stimulus programs.
The MBBA will offer the bonds as a mix of tax-exempts, taxable Build America Bonds, and taxable recovery zone economic development bonds. A one-day retail order period is expected on Tuesday followed by institutional pricing on Wednesday.
The agency will issue the debt, called Recovery Act bonds, in two series: Series 2010C, with a par of $4.7 million, for Putnam County, and Series 2010D, with a par of $44.9 million, for Cattaraugus, Oswego, Tioga, and Wyoming counties.
The New York Legislature authorized the pooled bond issuances last year to allow counties to take advantage of bond programs created in the American Recovery and Reinvestment Act.
Jefferies & Co. will lead manage the deal. Orrick Herrington & Sutcliffe LLP is bond counsel to the MBBA. Fiscal Advisors & Marketing Inc. is financial adviser to the counties, which also have their own bond counsel.
The deal is the smallest to date of the pooled financings. The MBBA sold $184.2 million in December 2009 and $116.3 million in May of this year. Those deals had some larger municipalities in the mix that increased the total.
Size isn’t the only difference between the deals. The last two were rated by Standard & Poor’s, whereas this one was rated by Moody’s Investors Service.
MBBA spokesman Philip Lentz said the decision to go with Moody’s was based on the fact that more of the counties had previous ratings from that agency. It also effectively lifted up the ratings for two counties because Moody’s rated the pooled bonds under its “Weak Link Plus” approach, a relatively new rating methodology.
It rates the pool based on a weighted average that considers both the probability that the weakest participant will default as well as the lessened impact of a single default on debt-service payments because other participants would still be paying.
Moody’s rates the Series D bonds Aa3, which includes Aa3-rated Oswego and Wyoming counties and A1-rated Cattaraugus and Tioga counties. It rated the Series C bonds Aa2 based on Putnam’s rating.
The counties will each place their bonds with the MBBA. They pay debt service to the agency, which uses those revenue streams as security for the Recovery Act bonds. As an additional layer of security, the state comptroller can intercept state aid if a county fails to make debt-service payments, though Moody’s said that provided “minimal” bondholder security because the counties pay debt service just five days before MBBA pays bondholders.
Fiscal Advisors chairman John Shehadi said the pool was attractive to counties because of the economies of scale and because larger deals attract more investor interest.
“For them to do it by themselves, the interest costs would be greater because of the smaller deal size,” Shehadi said.
Another benefit is that the MBBA will file the federal paperwork to get the 35% BAB interest subsidy and the 45% RZEDB subsidy year after year. It also allows the counties to issue bonds through negotiation rather than competitively, as they would for deals of $5 million or more.
Wyoming County Treasurer Cheryl Mayer said the pooled deal was more efficient for the upstate county, which has issued just $11.5 million in the past 10 years, according to Thomson Reuters.
“We find we may be entitled to better interest rates that certainly will serve our taxpayers by savings at the end of the day,” Mayer said.
