New York's Metropolitan Transportation Authority plans to sell $200 million of taxable Build America Bonds next week, with a one day for retail orders Wednesday and institutional pricing Thursday.

The MTA will issue the taxable portion as Series 2009C and will take a cash subsidy from the Treasury Department equal to 35% of the interest payable on the bonds, as allowed under the American Recovery and Reinvestment Act.

The authority will sell the bonds on its dedicated tax fund credit along with $450 million of tax-exempt bonds, Series 2009B.

"We would expect to see favorable pricing from an issuance of Build America Bonds and so we're going to see how it goes," said MTA finance director Patrick McCoy. "There appears to be some compelling investor interest in these bonds and we believe it will be an effective cost of capital for the MTA."

JPMorgan and M.R. Beal & Co. will lead manage the sale. Nixon Peabody LLP is bond counsel. Goldman, Sachs & Co. is financial adviser.

The MTA is the nation's largest public transit system, operating subways, buses, commuter rail, as well as toll bridges and tunnels serving the New York City metropolitan area.

The MTA will be paying close attention to the New Jersey Turnpike Authority's $250 million deal that is pricing on Monday and could change the size of its offering based on those results, McCoy said.

"There's obviously some large taxable deals that will be in the market next week before us and we're going to see how those go and adjust if necessary," he said.

The deal had not been previously announced when the preliminary official statement was released on Monday. The MTA had planned to market $400 million of revenue bonds next month and another $400 million deal in July, but McCoy said he now expects this deal will "meet our cash-flow needs through the summer."

The authority still plans to issue $2.64 billion of bonds this year. It has $26.61 billion of bonds outstanding.

The MTA expects to structure the tax-exempt bonds as serials with various maturities out to 30 years, whereas the BABs would have a single 30-year bullet maturity, though the structure is still preliminary, according to McCoy.

"We want to achieve a successful pricing, and clearly that would mean being flexible with respect to where we structure the bonds," he said.

One of the reasons the MTA is marketing the tax-exempt and taxable bonds together is for the opportunity to compare how they price.

"This is a new dynamic in our market - for-tax exempt issuers to be able to issue taxable and get this federal rebate - and part of the evaluation is to see how it stacks up with our traditional tax-exempt issuance," McCoy said. "If it goes well, we would certainly take advantage of it in the future."

The Build America Bonds have a make-whole redemption feature that is typical of corporate bonds. They can be redeemed in part or whole on any business day, according to the preliminary official statement.

If the MTA does redeem the bonds, the investor would be made whole using a formula that includes 100% of principal amount of the bonds to be redeemed and the sum of the present value of the remaining payments of principal and interest on those bonds minus certain interest payments detailed in the POS.

The bonds are backed by several dedicated taxes collected in the state and in counties served by the MTA and are subject to state appropriation.

Of the five credits on which the authority sells bonds,the dedicated tax fund credit carries the highest ratings from Standard & Poor's and Fitch Ratings. Standard & Poor's rates the credit AA and Fitch rates it A-plus. Moody's Investors Service does not rate New York State appropriation debt.

Last week, Moody's put the authority's transportation revenue bonds on watch list for a downgrade, stating that in the absence of a legislative rescue, downward revenue projections and rising costs did not support the existing A2 rating. Standard & Poor's and Fitch rate that credit A.

The MTA board last month approved sizeable fare and toll increases as well as service cuts to close a $1.2 billion budget gap. Dedicated tax collections have fallen by $200 million since February, according to the POS.

Austin Shafran, spokesman for Senate Majority Leader Malcolm Smith, D-Queens, said that senators are working this week on a rescue plan that could include a payroll tax, taxi fees, and vehicle registration fees.

The plan, which could go to lawmakers as soon as next week, would not include new tolling on certain bridges, a provision in a plan supported by Gov. David Paterson and Assembly Speaker Sheldon Silver, D-Manhattan.

Meantime, the MTA yesterday issued a material event notice that $557.9 million of outstanding auction-rate securities were exposed to Moody's downgrade of Ambac Assurance Corp. on Monday to junk status.

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