The New York State Environmental Facilities Corp. is expected to sell $497.5 million of triple-A rated state clean water and drinking water revolving fund revenue bonds on Tuesday after being priced for retail on Monday.
The bonds are being issued for the New York City Municipal Water Finance Authority to refund previously issued bonds under the MWFA financing program.
The EFC expects $75 million — about $10 million more than originally estimated — in present-value savings due to lower interest rates, said Tracey Hitchen Boyd, deputy director of public finance for the EFC.
Morgan Stanley is lead underwriter. Public Financial Management Inc. is financial advisor and Hawkins Delafield & Wood LLP is bond counsel.
The EFC, created in 1970, finances most of its state revolving fund loans to the MWFA by issuing bonds under a master trust indenture.
“These particular projects funded are eligible under the state revolving fund for our program benefits, which are largely characterized by an interest rate savings of 50% on clean water projects — those are primarily wastewater facilities — and they are also eligible for a one third interest savings on drinking water projects,” Boyd said.
Structured as term and serial, the bonds will have maturities out to 2029 and will be subject to redemption.
The bonds are special limited obligations secured by pledged revenues, which include repayments received on related bonds and, on a subordinated basis, money from deallocated reserves and excess coverage from the 2010 master financing indenture.
Both Moody’s Investors Service and Standard & Poor’s last week upgraded the MWFA bonds to triple-A from Aa1 and AA-plus, respectively.
Fitch Ratings has assigned the bonds a AA-plus. All three rating agencies carry stable outlooks on the credit.
“The upgrade is a reflection of the application of our recently updated criteria,” said Standard & Poor’s analyst James Breeding.
In March, Standard & Poor’s updated its “U.S. Public Finance Long-Term Municipal Pools” criteria, which considers the enterprise risk and financial risk scores characterizing a program.
Standard & Poor’s said the AAA rating reflects a view that the risk profile scores are extremely strong due to its market position, loss coverage score, low levels of defaults or delinquencies, and generally strong financial policies.
Moody’s analysts also cited as strengths the EFC’s financial position and the program’s wide default tolerance, as well as the loan repayment stream and the legal structure.
The legal structure includes a deficiency fund that captures excess revenues from other programs that could be used to cure shortfalls.
“One main credit issue for the program is the concentration of the loans in N.Y.C. MWFA. This is mitigated by the credit quality of N.Y.C. MWFA and the N.Y.C. EFC’s overall sizeable equity,” Moody’s analysts wrote.
Fitch has announced that it plans to implement its new criteria for state revolving funds and leveraged municipal loan pools but it will not negatively affect the ratings on the EFC’s subordinate bonds.
Next week the EFC will return to the market with $115 million of new-money and refunding bonds.
This pool program has previously received triple-A ratings by all three major credit agencies, Boyd said.
About $33 million of the bond proceeds will be used for clean water projects for 14 recipients and about $4.5 million will go toward drinking water projects for three participants.
Boyd says the EFC currently estimates about $11 million in present-value savings from the refunding bonds.
JPMorgan will be lead underwriter.