In hopes of generating debt service savings ahead of a debt service payment due on Sept. 15, the New York State Dormitory Authority next week is bringing to market $885 million of bonds to refund debt sold to finance State University of New York educational facilities.
The sale is being rushed to market as the agency is also preparing to sell roughly $680 million of personal income tax bonds on Sept. 23.
The dormitory authority board approved the measure in a special meeting on Wednesday, and the state's Public Authorities Control Board followed suit shortly thereafter. The special meetings were called so that the agency could receive approval of the bond sale ahead of the Sept. 15 debt service payment.
The authority expects to receive roughly $67 million in present-value savings from the deal, and will also free up $29 million in debt service reserve funds. The new bonds, which will begin selling Monday to retail investors and price Tuesday for institutional investors, will not have a debt service reserve fund. The agency expects to insure the bonds, but does not yet have a deal with any provider.
Debt slated for refunding includes 1989 and 1999 bonds sold under the SUNY educational facilities program. Next week's deal will feature 29-year convertible bonds which, for the first 10 years, will be fixed rate. However, the bonds will be recalled in 2012 and reissued as weekly variable-rate bonds through their final maturity in 2031.
Dormitory Authority spokeswoman Claudia Hutton said the refunding is part of an effort by Gov. George E. Pataki to trim debt service costs to help offset the economic effects of the Sept. 11 terrorist attacks that destroyed the World Trade Center. "This sale helps cut costs without cutting services that New Yorkers need," she said. "Looking at historical interest rate trends, we anticipate savings in every year through 2031, with significant savings this year."
In addition, the authority is also preparing to proceed with a $680 million sale of new-money bonds for a variety of educational projects. The sale will mark the first time the agency has sold bonds under New York State's new credit backed by 25% of the state's personal income tax collections, rather than traditional state appropriations. The structure, which has also been used by the Empire State Development Corp. and the New York State Thruway Authority, has generally earned higher ratings than state appropriation bonds received.
Lehman Brothers is the lead underwriter on the refunding. Nixon Peabody is bond counsel on both of the upcoming deals.
