New York's Metropolitan Transportation Authority announced yesterday at a finance committee meeting that it plans to sell up to $600 million of bonds next month.

The committee also approved sending the authority's $28.08 billion, five-year capital program to a review board, pending full board approval.

The MTA plans to come to market with at least $475 million of transportation revenue bonds next month though finance director Patrick McCoy said that the size of the deal could be increased to $600 million. The structure of the deal and whether to sell it as taxable Build America Bonds has not yet been decided.

Earlier this month the MTA competitively sold $200 million of BABs on its Triborough Bridge and Tunnel Authority credit. The size of that deal was increased from $158 million. Eight firms and syndicates bid on the authority's first competitive deal since 2001. A syndicate comprising Bank of America-Merrill Lynch as lead manager and Samuel A. Ramirez & Co. as co-manager won the bid.

The bonds were issued with a 27-year maturity at 5.42% and a 30-year maturity at 5.5%. On the long end, the BABs priced 123 basis points over Treasuries at the time of pricing. That is narrower than the 350 basis points over Treasuries the MTA received with its first BAB deal in April on its dedicated tax fund credit. The all in interest cost on the TBTA deal was 3.56%, including the BABs' 35% federal interest subsidy.

The MTA paid $9.59 million to terminate three transactions with Lehman Brothers Special Financing Inc., McCoy said. Two of the transactions were swaps and one was a guaranteed investment contract. The terminations were triggered by Lehman Brothers' bankruptcy last year and were approved by the Lehman Brothers creditors committee.

McCoy said that the authority "negotiated pretty aggressively" to get the termination payment down by $10 million.

"It just breaks my heart that we have to throw $9 million down another Wall Street rathole," said board member Doreen Frasca. She said she was concerned about outstanding swaps with Ambac Financial Services LP, which was recently downgraded, and with AIG Financial Products Corp.

The MTA currently has a notional $4.28 billion of swaps with eight counterparties. The swaps had a mark-to-market value of negative $372.8 million for the authority as of June 30.

Frasca said that a policy requiring new swap transactions to be brought to the finance committee for approval should be expanded so include any changes to existing swaps. MTA chief financial officer Gary Dellaverson objected to the suggestion on the grounds that it could impede time-sensitive negotiations. Frasca said she would work on a proposal to be introduced at a later date.

The MTA also plans to market $150 million of notes in November to refund $150 million of Triborough Bridge and Tunnel mandatory tender bonds due in January. The authority sold the debt as variable-rate demand bonds in February to take advantage of low variable rates.

The finance committee approved sending the authority's five-year capital program to the MTA Capital Program Review Board. The $28.08 billion plan, which must be approved by the oversight board, faces a nearly $10 billion shortfall. Without an additional funding source, the MTA will have to either scale back its capital program or raise fares in order to support more debt issuance.

The MTA's budget has been hit hard by the real estate slump. The authority receives dedicated real estate taxes from residential transactions in the region and commercial property transactions in New York City.

Overall real estate transaction taxes reported this month fell $5.9 million below projections to $36.4 million due to lower than forecast commercial property transactions, though residential transaction taxes came in $1.3 million above projections. Year-to-date real estate tax collections are down to $294.3 million, a 62.6% drop from the same period last year.

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