New York’s Metropolitan Transportation Authority is taking a wait-and-see approach to auction-rate securities that priced as much as 70 basis points higher yesterday than their initial rate at the beginning of the month. The MTA’s $430 million dedicated tax fund variable-rate Series 2007A initially yielded 3.15% on Nov. 7, but last week the auction-rate securities reset at an average interest rate of 3.71%, MTA acting finance director Kenneth Lind said at the authority’s Finance Committee meeting yesterday. The securities were offered in five subseries with seven-day resets. One subseries resets each day of the week. The subseries that resets on Mondays reset at 3.60% last week and at 3.85% yesterday. “The interest rate was a little higher last week but there was so much going on in the market last week,” Lind said. “That’s why we’re anxiously looking forward to seeing where that paper’s going to reprice this week.”
The bonds are insured by Ambac Assurance Corp., whose parent company, Ambac Financial Group Inc., last month reported a $743 million pre-tax unrealized loss for the third quarter and a $360.6 million net loss attributed to falling values in its credit derivatives portfolio. Earlier this month Tallahassee, Fla., sold its debt uninsured after originally planning to buy bond insurance from Ambac. Despite its losses, Ambac remains a triple-A insurer. Most of the MTA’s financial products have some form of credit enhancement from most of the insurers and at this time the authority doesn’t plan to replace any bond insurance, Lind said. “We are monitoring all of our products at this time and to the extent that the market doesn’t sort itself out we need to make changes, and we might, but we’re not expecting that at this time,” he said.Despite the higher reset, the bonds’ yield was still below the 4% anticipated in the MTA’s budget and below the 3.85% to 3.9% rate similar securities traded at last year, Lind said. MTA board member and New York City budget director Mark Page said the committee should keep those facts in mind when regarding the resets. “At the end of the day, what matters to us is how much the money costs, and our cost of funds is not particularly high as compared to historic trends and the kinds of assumptions we have built into our financial outlook,” Page said.The MTA expects to price its final bond transaction of the year on Dec. 4 or Dec. 5. The authority plans to sell $415 million of transportation revenue bonds with a one-day retail order period. Citi will be book-running senior manager and JPMorgan and Lehman Brothers will serve as co-senior managers. The MTA is taking bids for insurance but has not decided whether or not it will enhance the bonds, which will likely have maturities out to 30 years, Lind said. Hawkins Delafield & Wood LLP is bond counsel and Goldman, Sachs & Co. is financial adviserFitch Ratings and Standard & Poor’s assign the credit their single-A ratings and Moody’s Investors Service assigns its A2 rating. The MTA has sold $855.6 million of bonds this year, according to Thomson Financial. Following an announcement last week that increased revenue and savings in 2007 totalling $220 million would reduce proposed fare increases, chief financial officer Gary Dellaverson said yesterday that the authority would seek fare hikes sufficient to increase revenue by 3.85%. That is down from the 6.5% increase designed to raise an additional $265 million in 2008 and $318 million in 2009 that the MTA had proposed in July.