New York City brings its first deal of the new year to market next week with $875 million of tax-exempt bonds as it steps forward into a world without the Build America Bond option.

The New York City Transitional Finance Authority plans to offer the new-money fixed-rate bonds on its subordinate lien to retail investors on Monday and Tuesday with institutional pricing on Wednesday.

The deal will also be the city’s first since the taxable Build America Bond program expired Dec. 31.

“Back to plain vanilla,” said New York City deputy budget director Alan Anders. “We’re back to the old normal.”

Since BABs were introduced in 2009, the city structured the tax-exempt portions of its deals on the short end, with maturities typically less than 15 years. Next week’s offering will test retail appetite for tax-exempt maturities out to 30 years. The structure has not been finalized but according to the preliminary official statement and issuer officials, it is expected to have serial maturities through 2031 and term bonds on the long end out to 2041.

“The last couple deals retail has been relatively quiet so we’re hoping that as the market has stabilized retail will be coming back in,” said Carol Kostik, deputy comptroller for public finance. “All we have really offered [retail investors], because of BABs, has been at the very short end. We will have to see now that there’s a full 28-to-30 year structure.”

New York City embraced BABs with a bear hug. In 2009, the TFA, which also sells bonds for school construction backed by state aid, sold $2.54 billion of new-money tax-exempt bonds, compared to $689.7 million of BABs, according to Thomson Reuters. In 2010, that ratio reversed, with the TFA selling $541.6 million of new-money tax-exempts compared to $2.23 billion of BABs. The city’s other main credits, general obligation debt and New York City Municipal Water Finance Authority, had similar scenarios and sold $4.43 billion and $3.46 billion of BABs in 2009 and 2010, respectively.

“BABs were great for the city — we saved a lot of money,” Kostik said. “We were able to bring in new investors and take supply out of the tax-exempt market, which helped drive our tax-exempt borrowing costs down.”

Kostik and Anders said they don’t expect the end of BABs to have an impact on the city’s ability to market its debt.

“Before BABs existed, we were in the market and successfully sold billions of dollars of debt every year, and we expect to have no trouble continuing to do that,” Kostik said.

Janney Capital Markets managing director Alan Schankel said that the deal should do relatively well.

“It’s a great name,” Schankel said. “It’s a well-received name,”

On the other hand, “most institutional investors probably own TFA already,” he said.

Since BABs tended to be on the long end, investors are anticipating more supply of tax-exempt bonds with longer maturities, he said. Muni-treasury yield ratios on 30-year maturities have been virtually unchanged, whereas five-year and 10-year maturities have improved, Schankel noted.

“That tells me that munis in the last 35 days or so have outperformed Treasuries except for 30 years,” he said. “That’s reflecting the concern that there’s going to be more long-term tax free volume than in 2010.”

Barclays Capital is book-running senior manager on the deal. Sidley Austin LLP is bond counsel. A.C. Advisory Inc. and Public Resources Advisory Group are financial advisers.

The bonds are secured by a lien against city personal income-tax revenue that flows from the New York State comptroller’s office.

PIT revenue only goes to the city after bondholders have been paid. The bonds have an additional security of city sales tax revenue if PIT debt-service coverage falls below 1.5 times. The city uses the bond proceeds to reimburse its general fund for capital expenditures.

The TFA has $17.43 billion of future tax-secured bonds outstanding. Fitch Ratings and Standard & Poor’s rate the bonds AAA, while Moody’s Investors Service rates them Aa1. All have stable outlooks.

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