The New York Metropolitan Transportation Authority’s finance committee approved a new underwriting team of five senior managers, 13 co-managers, and its first-ever pool of authorized swap counterparties totaling 15 firms.
The finance committee approved as senior underwriters Bear, Stearns & Co., Citigroup Global Markets Inc., Lehman Brothers, JP Morgan Chase & Co., and UBS Securities LLC. JP Morgan was selected after obtaining on Friday an NASD regulatory waiver for a G-37 rule violation the firm revealed earlier this month.
“We are looking for firms that can demonstrate a thorough knowledge of the MTA’s debt portfolio and its financing program,” said finance director Patrick McCoy, who presented the recommendations to the committee. “Obviously, we want really high quality ideas about how to execute our financing program at the lowest cost.”
The committee approved the following firms as co-managers: A.G. Edwards & Sons Inc., Banc of America Securities LLC, First Albany Capital Inc., Loop Capital Markets LLC, M.R. Beal & Co., Merrill Lynch & Co.; Morgan Stanley; Samuel A. Ramirez & Co.; Raymond James & Associates; RBC Capital Markets, Roosevelt & Cross Inc., Siebert Brandford Shank & Co., and Wachovia Bank NA.
Firms selected to be eligible interest-rate swap counterparties are: Banc of America, Bank of Montreal, Bear Stearns, BNP Paribas, Citigroup, DEPFA Bank PLC, Dexia Credit Local New York Bank, JP Morgan, Lehman, Merrill Lynch, Morgan Stanley, RBC Capital, Scotia Capital/Bank of Nova Scotia, UBS, and Wachovia.
The committee’s recommendation now goes to the MTA’s full board for approval and they are expected to vote on the measure this morning at their monthly board meeting.
The MTA received and weighed proposals from 43 firms, with some companies applying for multiple posts. Eighteen firms applied to be senior managing underwriters, and 20 applied to be co-managers. The MTA — which put out the request for proposals in December — received responses from 18 firms seeking to be eligible as swap counterparties.
The MTA used a five-member selection committee to review the applications and to conduct oral interviews. Representatives of the MTA’s finance, legal, budget departments, sat on the committee along with the controller of the New York City Transit Authority, a subsidiary of the MTA. Goldman, Sachs & Co., the MTA’s financial adviser, was a non-voting member of the committee.
McCoy said the authority would first draw on this new pool of approved firms in March when it brings two separate deals to market. The MTA plans to issue $350 million of dedicated tax fund bonds, and $200 million of bond backed by one of its subsidiaries, the Triborough Bridge and Tunnel Authority.
McCoy also said the MTA will be launching “a more rigorous process” of reviewing all publicly available information of financial firms they are considering doing business with. That will include reviewing 10K, 10Q, and 8K filings to ensure the firms do not have any outstanding issues that would be a cause of concern to the MTA or its staff, McCoy said.
“This is a more rigorous process than we have in place,” McCoy said. “We do have a review in place but this is going to be much more rigorous and more formalized and it will be sent to the executive director for her review.”
McCoy said the MTA last reconstituted its pool of underwriters in mid-2000.
According to Thomson Financial, from 2000 to 2006 Bear Stearns was the top underwriter of MTA debt in terms of par amount totaling more than $4.68 billion. Morgan Stanley was second with more than $2.92 billion, followed by Lehman with more than $2.88 billion, Merrill with more than $2.14 billion, US with more than $1.85 billion, J.P. Morgan with $1.29 billion, First Albany with $725.3 million, and Citigroup with $350 million.
The MTA lowered its overall number of senior managers to five firms from eight. First Albany, Merrill Lynch, and Morgan Stanley — which had all been senior managers — will now work as co-managers.
MTA spokesman Tom Kelly said the new review process was not in response to questions New York state comptroller Alan Hevesi raised about ABN AMRO to provide a letter of credit for a $450 million commercial paper sale planned to sell this week.
McCoy said that over the past several years the MTA has sought to be more responsible in the selection and hiring of vendors.
“This is just a continuation of those efforts to be more thorough,” McCoy said.
