N.Y. MTA Decides Not to Restructure Its VRDBs for Now

New York's Metropolitan Transportation Authority will not restructure its variable-rate demand bonds for the time being despite spikes in interest rates last week, the MTA said yesterday.

Interest rates on two series of the agency' sVRDBs reset at 8.3% and 10% on Friday, driving up the cost of borrowing. The bonds had reset below 2% six weeks ago.

"Those resets are obviously a function of what's happening in the market," MTA finance director Patrick McCoy said. "There's selling going on and not much buying."

About 12% of the MTA's $26.7 billion of debt is variable rate, while 17% is synthetic fixed rate and 71% is fixed rate.

McCoy said the authority is focused on dealing with its most problematic issues - its remaining auction-rate securities and VRDBs with downgraded insurers. The MTA still has about $700 million of ARS outstanding.

The agency is in the process of converting $491.5 million of VRDBs that carry Ambac Assurance Corp. insurance. Ambac was downgraded by all three rating agencies earlier this year. The bonds being converted are $291.5 million of Triborough Bridge and Tunnel Authority Series 2001B and 2001C, and $200 million of Series 2002G-1 transportation revenue bonds.

Citi is the remarketing agent for the TBTA bonds and Merrill Lynch, which has become part of Bank of America, will continue as remarketing agent on the transportation revenue bonds. Conversions are schedule for early October.

The MTA kept Merrill Lynch in place because it "was very clear that there was a path to getting to a new entity," McCoy said.

Last month the MTA refunded $348.2 million of ARS that used Lehman Brothers as a remarketing agent. The authority is sticking with Lehman, and its successor, Barclays PLC.

"With Lehman we have essentially two outstanding bond issues that are remarketed by them," McCoy said. "Wednesday's the critical day when they get reset. If things happen like we think they will between now and Wednesday, we should see a successful remarketing, notwithstanding all the other market upheaval that's going on. And if it doesn't, then we would obviously revisit the issue."

McCoy also said that Goldman, Sachs & Co., which announced over the weekend that it would become a bank holding company, will continue as the MTA's financial adviser.

Also yesterday, the authority announced it plans to sell next month $500 million of MTA transportation revenue bonds for transit and commuter capital projects. An underwriter has not been announced for the series 2008C bonds. Hawkins, Delafield & Wood LLP is bond counsel.

The softening real estate market continued to cause concern at the MTA which gets dedicated taxes from real estate transactions in the city and suburbs. Real estate taxes reported this month came in slightly below the revised mid-year forecast at $78.4 million. In July, the MTA revised its projections for real estate tax collections this year down by $201 million to $1.05 billion. Last year the taxes totaled $1.59 billion.

"This most recent month, September, was the worst month in six and half years," MTA chief financial officer Gary Dellaverson said of the mortgage recording tax, which along with a tax on certain commercial property and apartment building transaction makes up the real estate taxes dedicated to the MTA.

Real estate taxes total $786 million so far this year compared to $1.26 billion that had been collected by September 2007.

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Transportation industry
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