New York City yesterday priced a $350 million synthetic fixed-rate swap in a competitivebid, with Investment Management Advisory Group serving as the city's swap adviser andWachovia Bank submitting the winning bid of 2.964%.
The swap was done as part of a general obligation refunding deal totaling $1 billion. Inaddition to pricing $350 million in synthetic fixed rates, the city completed thepricing on $650 million of conventional fixed-rate GO refunding bonds yesterday.
"It brings down the cost of the longest maturities, therefore the most expensive in theborrowing," said Alan Anders, New York City's deputy budget director for finance,regarding the swap deal.
As part of the swap, the city will sell $350 million of multi-modal, variable-rate bondsJuly 14, the same day the conventional fixed-rate deal closes. Under the swap contract,it will pay the synthetic fixed rate to Wachovia and receive 61.85% of one-month LondonInterbank Offered Rate from the bank to cover the cost of the variable-rate bonds.
The principal of the variable-rate bonds mature between 2024 and 2031, and the swapcontract goes out to 2031. In contrast, the $650 million of conventional fixed-raterefunding bonds were broken into $610 million of 20-year tax-exempt bonds and $40million of 10-year taxable bonds.
Anders said the city saved around 100 basis points in interest costs by using syntheticfixed rates as opposed to conventional fixed rates for the longest-term maturities inthe deal, including the cost of credit enhancement and remarketing for the variable-ratebonds. He said the city did a $215 million synthetic fixed-rate deal in January as partof a GO refunding and a $400 million synthetic deal in November.
Rita Sallis, New York City's deputy comptroller for public finance, said the comparableconventional fixed rate was 4. 9% for the 24-year maturity. The average life of the $350million of variable-rate bonds is 24 years.
Morgan Stanley had the cover - or runner-up - bid on the swap of 2.9689%. The other pre-qualified bidders were Bear, Stearns & Co., Goldman, Sachs & Co., Bank of America,Lehman Brothers, and UBS Financial Services Inc.
The banks providing credit support for the variable-rate bonds are Bank of America, BNPParibas, Bank of Nova Scotia, HSBC Bank USA, and Landesbank Baden-Wurttemberg.
