In the first deal backed by a new payroll tax, New York's Metropolitan Transportation Authority plans to go into the short-term market with up to $600 million of revenue anticipation notes, officials said yesterday.
The MTA is calling the credit, which is tentatively scheduled to price on July 1, transportation revenue anticipation notes. The payroll tax was enacted by the state last month as part of a bailout of the transit agency. The MTA yesterday also revealed a revised, scaled-back agreement for the Atlantic Yards project with developer Forest City Ratner Cos. that will go to the full board for approval tomorrow.
The MTA has not sold Rans since 1996 when it sold $177 million, according to Thomson Reuters. The new deal will be the first backed by the payroll tax, which is expected to bring in about $1.5 billion annually and eventually provide debt service on $6.8 billion of bonds.
Although the payroll tax, formally called the mobility tax, went into effect retroactively to March, the MTA won't see the money until November, hence the need for borrowing. The payroll tax levies range from 0.34% to 0.25% in the 12 counties the agency serves. The law also added a menu of motor-vehicle related fee increases that are expected to fund roughly $250 million of the authority's operating expenses.
Barclays Capital is senior manager on the note sale that will mature on Dec. 31. Samuel A. Ramirez & Co. will be co-senior manager. Nixon Peabody LLP is bond counsel and Goldman, Sachs & Co. is financial adviser.
In addition to the payroll tax, the debt has two backstops. If the tax collections as of Nov. 25 are insufficient to repay the notes, the MTA will begin to pull in operating subsidies, including the new motor vehicle fees and other dedicated taxes such as corporate and petroleum taxes. If by Dec. 7 those additional funds haven't brought in at least 75% of the par amount of the notes - or $450 million - then the MTA will begin to pull in farebox revenue so that by Dec. 16 the debt would be fully funded.
"It is structured to get the highest rating," said MTA chief financial officer Gary Dellaverson. The authority has been in talks with rating agencies but hasn't gotten a rating yet, he said.
Finance director Patrick McCoy said that if they get the highest possible short-term rating, he expects the MTA will pay interest on the notes of between 0.4% to 0.6%, but if they get the second-highest rating it would be in the high 1% to 2% range.
The deal's issuance and interest costs are expected to be about $7 million, of which roughly $5 million would come from a bond issuance fee that the state imposes on bonds issued by public authorities that have three or more governor-appointed board members.
Several board members voiced unhappiness with the MTA paying a fee to the state after being forced into borrowing for cash-flow needs by what was characterized as a delay of the state government in getting the payroll tax funds flowing. Dellaverson said he has been in talks with the state to try to get the fee waived.
An MTA spokesman said the authority has no plans at this time to issue bonds on the new credit.
The MTA also presented a revised agreement to sell development rights over a rail yard in Brooklyn to Forest City Ratner.
The developer plans to build 16 towers of apartments and commercial space as well as a basketball arena in a project called Atlantic Yards.
The developer had previously agreed to pay the MTA $100 million up front for the development rights over the Vanderbilt rail yards, but under the new agreement would pay $20 million up front and then $80 million at net present value in installments over 19 years for the development rights.
The developer would also scale back the amount of promised improvements to the rail yards to $150 million from $250 million. The economic downturn prompted Forest City Ratner to ask for the easier obligation.
In a first for the MTA, the developer would pay a $200,000 annual fee to have the subway stops serving the arena carry the name Barclay's Center, after the bank that purchased naming rights to the arena. The new plan goes before the full MTA board tomorrow.
