The New York City Industrial Development Agency yesterday approved the refunding of $71 million of bonds sold in 2003 to pay for planning and development costs incurred in connection with an aborted proposal to expand the New York Stock Exchange.

The IDA issued $78 million of fixed-rate fiscal 2004 Series A bonds and $30 million of variable-rate fiscal 2004 Series B bonds to finance "costs for predevelopment, design, and site acquisition and disposition" of the NYSE expansion, which was to include moving the exchange across the street from its current location on Wall Street. The NYSE decided against the expansion in the aftermath of the terrorist attacks of Sept. 11, 2001.

New York City and the IDA entered into an agreement with the NYSE in 2003 under which the city was obligated to pay debt service on the bonds, subject to appropriation, pursuant to state legislation.

The fixed-rate bonds were subject to a total return swap that gave the city a synthetic variable rate but which has since been unwound. The underwriter on the original deal, Morgan Stanley, purchased the bonds and placed them into a trust from which it sold floating-rate certificates to investors. The city paid 67 basis points above the Securities Industry and Financial Markets Association's municipal swap index.

"The buyers put the certificates back, so the swap unwound, unfortunately," said city deputy budget director Alan Anders. "We were happy with it while it lasted and were able to unwind it at basically no cost, and now we can refinance the fixed-rate debt as lower fixed-rate debt."

The city's experience is not unusual, said Peter Shapiro, managing director of Swap Financial Group.

"As the credit crisis has gone on, a lot of the total return swaps have terminated, the investor in them is putting back the paper," he said. "In some markets it generates a cheaper costs of funds - the risk you've got is that the structure can terminate."

Samuel A. Ramirez & Co. will serve as book-running senior manager on the current refunding, which the city expects to price in April or May in an amount not to exceed $79 million. Morgan Stanley, Banc of America Securities LLC, and Loop Capital Markets LLC will co-manage the deal.

Hawkins Delafield & Wood LLP is bond counsel.

Anders said the refunding bonds are likely to be issued as both serial and term with maturities out to 2029.

The city expects a net present-value saving of $2.2 million, based on market conditions as of Feb. 19, 2009, according to a letter from Anders to the IDA.

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