The New York Metropolitan Transportation Authority is debuting a new sales tax-backed credit as it prices $700 million of "capital lockbox" city sales tax revenue bonds.
Goldman Sachs & Co. is lead underwriter on the deal, which was offered to retail investors Wednesday via the Triborough Bridge and Tunnels Authority. The bonds nabbed a AAA from Fitch Ratings and a AA-plus from S&P Global Ratings.
The MTA is “anticipating a favorable reception to the bonds” and intends on using the funds for programs beyond those outlined in the current 2020-2024 plan, according to an MTA official.
“It’s a revenue stream that will continue to be able to deliver proceeds for the capital program,” he said.
Goldman priced for retail investors the TBTA $700 million of sales-tax-backed bonds on Wednesday. The 10-year with a 5% coupon was priced to yield 2.89%, the 20-year with a 5% coupon to yield 3.54%, the 30-year with a 4% coupon to yield 4.14%, the 35-year with a 5.25% coupon to yield 3.79% and the long bond that matures in 2062 was not offered to retail.
Proceeds of the deal will go toward upgrading commuter transit systems in New York City, according to a preliminary official statement.
The credit is backed by a TBTA capital lockboxfund managed by the city’s comptroller's office.
That fund, which received an initial deposit of $170 million last fiscal year, is backed by taxes on retail sales, utilities, communication services, and certain manufacturing, as well as revenue earned from parking garages and vehicle storage. According to the POS, the state’s comptroller is obligated by law to service the new bonds with annual deposits totaling 101% of previous year's contributions to the fund.
Fitch Ratings cited that funding structure as key in their decision to give the new bonds a AAA.
Fitch noted the “narrow nature of the statutory dedication” and “specific purpose of the borrowing program” backing the bonds, as well New York City's diversified and recovering sales tax base, helps to reduce overall risk, insulate against shifting political winds, and ensure payments are protected against budget cuts.
“The AAA rating on TBTA city sales tax revenue bonds reflects the strong standalone credit quality of the dedicated portion of New York City sales tax allocated to the TBTA for bondholders,” the report said.
Any funds raised will finance upgrades to the city’s public transportation system outlined in the MTA’s Capital Program 2020-2024 plan.
CreditSights strategists also anticipate “strong demand for this new, high-quality, New York tax-exempt credit.”
With “more than 48 times coverage of the total amount available for debt service” the bonds have earned a rating higher than New York State itself, according to the report by Patrick Luby and John Ceffalio. "The bonds have no appropriation risk. In our view, the security features, massive economic base, and strong coverage make a rating a notch above the state's Aa1/AA+/AA+ rating appropriate."
The plan dedicates about 70% proceeds to subway renovations and upgrades alone, including funding for a transition to green technologies and renovations bringing more stations into compliance with accessibility requirements outlined in the American with Disabilities Act.
“We anticipate that New York investors will be anxious to add this new high-quality issuer to their portfolios, and the prospect of being able to buy additional bonds in the future will help to encourage buyers even if they have to accept a smaller-than-desired allotment,” Luby and Ceffalio said. “Because of the novelty of this new credit, we expect that the primary demand will not be fully satisfied and that demand will carry over into the secondary market, giving these bonds the opportunity to outperform the PMT bonds and the tax revenue bond sector.”
The deal’s finical advisors are Public Resource Advisory Group, Inc. and Backstrom McCarley Berry and Co. Bond counsel is Orrick, Herrington, and Sutcliffe LLP and Bryant Rabbino LLP. The trustee is Computer Trust Company, N.A., and underwriters counsel is Norton Rose Fulbright US LLP.
