A deadly crane accident on the Upper East Side of Manhattan on Friday could put the city on the hook for debt service payments on bonds that had partially financed the project.

The New York City Education Construction Fund competitively sold $51.3 million of bonds in January 2007 to build an intermediate public school for 550 full-time students at 1765 First Avenue at East 91st St.

A joint venture by the DeMatteis Organization and the Mattone Group leased the property at for 75 years from the ECF and had begun construction on a multi-story complex designed to house a 80,000-square-foot school as well as a 140,000-square-foot residential tower and 15,000 square feet of commercial space.

On Friday morning a construction crane at the site collapsed, killing two construction workers, injuring at least three people, and causing damage to a nearby building. The school building itself was apparently not damaged. The accident came just two months after another crane accident killed seven people in Manhattan.

"New York City guarantees these bonds," said city Department of Education spokeswoman Margie Feinberg. "The bondholders will be paid regardless of the status of the project."

Lease payments and payments in lieu of taxes by the developer are supposed to pay debt service on the bonds, but ultimately it is the city's obligation.

"The intent on these combination public-private buildings is that ECF would receive lease payments from the private developer and would use that to pay debt service, but ultimately it is the city's obligation to pay," said Moody's Investors Service analyst Nicholas Samuels. "The basis of the rating on those is they are an absolute and unconditional lease obligation of the city. There's also the ability of ECF to intercept state education aid."

Moody's rates the bonds A1, a notch off New York City's rating, on which it is based. Standard & Poor's rates the bonds AA-minus.

The school was supposed to open this fall at the start of the school year and the non-school portion of the project was expected to be completed by December, according to the official statement.

An investigation could delay the project, but DeMatteis spokesman Don Miller said it was too soon to tell how the accident would affect the construction schedule.

Feinberg said the city would have to wait until after the investigation to assess what kind of delay, if any, the accident could cause the project.

 

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