N.Y.C. Health Agency to Sell $225M of BABs, $500M of Refunding Bonds

The New York City Health and Hospitals Corp. plans next week to market its first new-money bonds in seven years. The corporation plans to sell up to $225 million of taxable Build America Bonds and up to $500 million of tax-exempt refunding bonds Tuesday, following a one-day retail order period Monday.

JPMorgan is book-running senior manager on the deal.

HHC operates the largest public health care system in the U.S. with facilities that serves more than 1.3 million people annually, of which more than 450,000 are uninsured. Were it not for direct support from New York City, the health care system would have a large operating deficit. The city projects that fiscal 2011 expenditures will be $6.7 billion while revenue is projected at $5.9 billion.

HHC has sold $1.29 billion of bonds over the past 10 years, according to Thomson Reuters. It was last in the market in 2008 when it refunded $457.9 million of bonds. Before those refundings, the corporation had sold $590.5 million of new-money bonds in 2002 and $245.2 million in 2003.

“We have been planning a refunding of HHC bonds to take advantage of current interest rates to achieve debt-service savings,” president and chief executive officer Alan Aviles said in a September report to the board.

Many issuers have refunded debt in recent months as rates have been low. Municipal Market Data’s triple-A 30-year benchmark rate was 3.71% as of Friday.

The new-money portion of the deal will finance capital projects over the next two years.

The corporation wanted to get the deal in the market before the BAB program, which offers issuers a 35% interest cost subsidy, expires or changes. 

“The advantage of the federal Build America Bond program will diminish substantially after Dec. 31, 2010, and we expect the market will be crowded with issuers in December,” Aviles said in the report.

In recent years, New York City has financed many HHC capital projects with general obligation bonds. Over the past 10 years, about $1.3 billion in agency projects have been financed through city GO or bonds issued by the Dormitory Authority of the State of New York, according to Moody’s Investors Service analyst Nicholas Samuels. 

It was unclear Tuesday why the new money debt was being financed on HHC’s credit rather than the more highly rated city GO credit. The city’s Office of Management and Budget, HHC, and the comptroller’s office either did not respond to queries or were unable to provide information by press time.

Moody’s rates HHC’s outstanding debt Aa3 with a stable outlook, a notch below the city’s GO rating.

“It’s based on a very strong legal structure and the city’s support that requires the city to restore HHC’s capital reserve if it’s drawn on and the legal mechanics are so strong that we view it as just one notch off the city,” Samuels said.

Standard & Poor’s analyst Karl Jacob also cited the strong legal structure of the debt, which pledges HHC revenues for debt service before it flows to operations, providing a 54 times maximum annual debt service coverage.

Standard & Poor’s and Fitch Ratings rate the agency’s outstanding debt A-plus with a stable outlook.

For reprint and licensing requests for this article, click here.
Healthcare industry New York
MORE FROM BOND BUYER