The New York Power Authority plans to exit the auction-rate market by using tax-exempt commercial paper to take out two series of the securities totalling $72.1 million, the issuer said yesterday.
The NYPA board approved the sale at its monthly meeting yesterday along with an authorization for Citi and JPMorgan to market greater amounts of commercial paper for the authority to make up for the loss of UBS Securities LLC as one of its marketing agents.
"NYPA is using commercial paper to refund the ARS because our CP programs are resetting at approximately 100 basis points below the ARS and we have the capacity under our existing revolving credit facility to issue the $72.1 million in additional notes," NYPA spokeswoman Connie Cullen said in an e-mail. "This eliminates the need, in the case of [variable-rate demand bonds], to secure a new line, which in today's market can been extremely costly."
The authority plans to market its Series 2 commercial paper in August to take out the ARS.
The commercial paper will take out NYPA's Series 3 and 4 ARS that were first marketed in 2000 to finance the construction of a power plant in Astoria, Queens, that has been on line since 2005. The securities began experiencing auction failures mid-February when one series reset at 3.59% compared to an average of 3.2% over the prior five weeks. The ARS failure rate was set as 125% of the prevailing AA commercial paper rate. The two series reset at 2.739% and 2.48% last week, according to Bloomberg data.
Refunding the ARS with commercial paper will save the authority $73,000 a month, NYPA said in a press release.
Before announcing that it was exiting the municipal securities business, UBS was marketing $105.3 million of the authority's commercial paper and had been authorized to market $175 million. The outstanding notes will be redistributed to JPMorgan, Citi, and Goldman, Sachs & Co. The authority today increased JPMorgan's and Citi'sauthorization to market NYPA Series 2 commercial paper from $50 million to $100 million, Goldman's authorization was unchanged, at $175 million.
NYPA operates 18 power-generating facilities and more than 1,400 circuit miles of transmission lines in the state.