New York City wants underwriters to figure out how the city could utilize tax-credit bonds provided for under the federal stimulus package, according to a request for proposals for underwriting services released yesterday.
The city is looking for a new slate of book-running underwriters and co-managers for its general obligation credit, the Transitional Finance Authority, and the New York City Municipal Water Finance Authority.
The RFP ask applicants wishing to be book-running senior managers to explain how the issuers can take advantage of opportunities under the American Recovery and Reinvestment Act of 2009, particularly regarding the use of taxable bonds and tax-credit bonds.
"If optimal use of these new opportunities requires changes in existing issuer debt practices, how should the issuers evaluate the trade-offs?" the RFP says. "Given that previous legislation has included tax-credit bonds without widespread market acceptance, why and how does your firm believe that this legislation and market environment may be different?"
The stimulus package created taxable Build America and Recovery Zone bonds that carry either a direct subsidy to the issuer or a tax credit to investors.
The package also expanded and created tax-credit bond programs, including the existing qualified zone academy bond program and a new qualified school construction bond program.
Senior manager applicants are also asked what the city could do to change its exposure to market and credit risk.
How the financial and economic turmoil of the past year has changed the muni landscape is front and center on the RFP. The first question asks applicants what impact the past 12 months have had on their firm, its involvement with municipal issuers, and "its ability to function effectively in support of the issuers' debt programs."
Firms also must disclose their capitalization by the end of last year, including equity, debt, and excess net capital. This disclosure includes a list of their average daily municipal bond inventory in 2006, 2007, and 2008, with a breakdown of fixed- and variable-rate debt and separating auction-rate securities from variable-rate demand bonds and other floaters.
The city also asks book-running underwriter applicants, and any wishing to be involved in transactions involving derivatives, how the issuers should re-evaluate counterparty risk in light of recent events.
Proposals are due by April 2 and questions about the RFP are due by March 11. Oral presentations are expected to begin the week of April 20.
The Office of Management and Budget and the city comptroller's office work together to select the syndicates, which must be approved separately by each issuer.
New York City plans to sell $8.63 billion of bonds in fiscal 2010, according to the proposed January financial plan. That includes $6.23 billion of GOs, $2.4 billion of water authority bonds, and $250 million of TFA building aid revenue bonds, known as BARBs.
OMB spokesman Raymond Orlando declined to comment on the RFP.
The city last put out a request for proposals for underwriters in 2006. Underwriters do not serve for a specified term.
In the last 12 months, many issuers have seen their underwriting syndicates shrink, as UBS withdrew from public finance, Lehman Brothers disappeared, Bear Stearns & Co was absorbed into JPMorgan, and Bank of America took over Merrill Lynch & Co.
In 2006, the city selected Morgan Stanley, Merrill Lynch, Bear Stearns, and Citi to serve as senior managers on its GO deals.
The TFA chose Goldman, Sachs & Co., Lehman Brothers, JPMorgan, and Morgan Stanley as senior managers for its personal income tax bonds and Bear Stearns, Citi, and Goldman Sachs for its BARBs.
The water finance authority chose UBS, Siebert Brandford Shank & Co,, First Albany Capital Inc., M.R. Beal & Co., and Merrill Lynch as its senior managers.
