New York City plans to begin selling $1.3 billion of general obligation bonds this week when it offers retail investors a refunding portion of the deal on Friday.
The new-money piece, which consists of $650 million of taxable Build America Bonds and $150 million of traditional taxable bonds, are scheduled to sell in October. Bank of America-Merrill Lynch will senior manage the BAB deal and the $500 million tax-exempt refunding. The traditional taxables will be priced competitively.
A two-day retail order period for the refunding bonds will begin on Friday with institutional sales following on Oct. 5. The BAB sale is scheduled to include a one-day retail order period on Oct. 6.
The preliminary structure of the BABs and traditional taxable bonds shows serial maturities from 2012 to 2026 with term bonds of as-yet-undefined maturities. The refunding bonds will have serial maturities through 2030, according to the preliminary official statement.
Sidley Austin LLP is bond counsel. Public Resources Advisory Group and A.C. Advisory Inc. are financial advisers on the deal.
The city also intends to convert $90 million of variable-rate demand bonds to fixed-rate debt on Oct. 5.
The city has sold $36.79 billion of new-money GO bonds since 2001, including $1.8 billion this year, according to Thomson Reuters. During that time it has refunded $12.98 billion.
The city sells bonds for its capital program through several credits. In addition to GOs, the city sells bonds secured by income and sales taxes through the New York City Transitional Finance Authority and water and sewer bonds through the New York City Municipal Water Finance Authority. It also sells state aid-backed school construction bonds through the TFA.
The city’s $63.1 billion fiscal 2011 budget includes $8.92 billion of bonds to be sold to partially finance the city’s capital program. The city plans to sell $9.54 billion of bonds in fiscal 2011.
Last week, New York City released its updated capital commitment program, which at $12.06 billion was the lowest since fiscal 2006, when the city entered into $10.96 billion of capital commitments. The lower amount compares to an annual average over the previous four fiscal years of $14.92 billion. Capital commitments refer to contracts the city expects to enter into in anticipation of spending for specific projects which may roll out over several years.
Office of Management and Budget spokesman Raymond Orlando said the relative drop off in capital commitments this fiscal year was due to the timing of projects, not a retreat from capital projects. Last year, for example, the city entered into contracts related to the clean-up of Newtown Creek between Brooklyn and Queens for approximately half a billion dollars, Orlando said.
“That’s how the commitment plan can swing,” he said. “We have a $32.5 billion four year capital plan but we’re not necessarily going to spend $32 billion in that four year period ... Those are the commitments that we’re authorizing and when the spending happens is different matter.”
The city plans to sell $9.09 billion of bonds in fiscal 2012, $8.49 billion in ficsal 2013 and $8.24 billion in the fiscal 2014.
Debt service on the city’s GO, TFA, and lease debt are expected to consume an increasing proportion of the city’s tax revenue, rising to a projected 15.7% in fiscal 2014 from 11.9% in fiscal 2010. Annual debt service on the city’s GO, TFA, and lease debt would increase by a projected $1.8 billion during that time to $6.8 billion.
Moody’s Investors Service rates the city’s GO Aa2. Fitch Ratings and Standard & Poor’s rates it AA. All have stable outlooks.