N.Y.C. HDC Asks for Higher Debt Limit

The New York City Housing Development Corp. has asked the New York Legislature to raise the agency’s debt limit to $7.75 billion, a $1.5 billion increase, to sell taxable and tax-exempt bonds, and possibly finance an anticipated housing fund. With slightly more than two weeks left in the legislative session, the Assembly and Senate are considering identical bills introduced last week to raise the limit. New York City requested that HDC administer a $400 million fund to replace part of the 421-A real estate abatement program, which was modified in December in a compromise between the City Council and Mayor Michael Bloomberg. Beginning in 2008, the fund will replace a negotiable certificate program that allowed developers of affordable housing in much of the city to sell tax credits to developers in an exclusionary zone in Manhattan.Under the new legislation, the exclusionary zone was greatly expanded, and developers in that zone have to provide affordable housing on site to qualify for the tax break. The trust fund is meant to fill the gap left by the change in the law by providing a direct subsidy to developers in the fifteen lowest-income neighborhoods in the city. “While the final details of the sources are not clear at this writing, it appears that HDC may issue bonds to securitize assets from New York City to raise the money for the fund,” HDC said in a memo in support the bill. “While the sources of the securitization are currently unknown, this type of transaction would be consistent with past practices as well as HDC’s mandate to encourage and promote the creation and preservation of affordable housing throughout the five boroughs.”“We’re in the middle of talking to [the Office of Management and] Budget about it, and we are optimistic it’s going to work out,” said John Crotty, HDC executive vice president and chief of staff, about the possibility of bonding the $400 million. Crotty said a potential revenue stream to back the bonds had been identified, but he wouldn’t reveal what it was because it wasn’t final.The decision of whether to use bonds hasn’t been finalized. According to Woody Pascal, chief of staff for City Council member and Housing Committee chairman Eric Martin Dilan, “The money will be generated by a tax revenue; this is not going to be generated by bond sales.” HDC uses the proceeds of its bond sales to lend money to developers in return for setting a portion or all units as affordable. HDC also anticipates selling $600 million to $80 0 million of taxable bonds to finance housing that sets aside 20% of its units for families making up to 100% of area median income. HDC has been pushing its taxable bond program in response to high demand that has outpaced its tax-exempt private activity bonds cap. The remaining $300 million to $500 million may not be used this year if the corporation is not able to get more private activity bond capacity out of Albany or Washington. HDC has just $277 million of volume cap remaining for the year, which it expects to use up at the end of the month, but it has more than $1 billion of projects in its pipeline. The additional debt capacity won’t necessarily have an impact on their rating, said Standard & Poor’s analyst Valerie White. “It’s conceivable they’d be able to maintain their credit rating as is, provided that they could still institute the policies that have kept them so strong for so many years” she said. “We would look at the manner in which they are going to manage this additional bonding capacity, how they would continue to protect themselves against credit risk— they do generally have the developers take full recourse for the risk, including letters of credit.”Standard & Poor’s assigns its AA rating with a stable outlook to the credit, which is based on “the strength of their financial performance, in particular their management and their ability to asset manage their portfolio, and service their mission to the New York City market,” White said. HDC has sold $7.34 billion of new-money bonds and refunded $720.5 million of bonds since 1997, according to Thomson Financial. Moody’s Investors Service assigns the issuer its Aa2 rating. Fitch Ratings does not rate the credit.