The New York City Transitional Finance Authority plans to return to market with $900 million of new-money, future tax-secured bonds next week after a two-year hiatus on selling that kind of debt.
Having hit its statutory debt limit on the bonds in 2007, the TFA was unable to market new-money bonds on the credit until the New York Senate passed a bill last week that changed the limit.
The TFA future tax-secured debt are now included as part of the city's general obligation debt limit, which means that the city can return to its practice of alternating bond issues between GO and TFA. Future tax-secured bonds are backed by city personal income taxes and, if necessary, sales tax receipts.
When the TFA was created in 1997 with a $7.5 billion limit on the aggregate issuance of debt, the city had reached its GO debt limit, which is derived from property values.
Over subsequent years, the TFA's debt limit was increased to $13.5 billion with special conditions on senior-lien issuance: senior-lien issuance could not exceed $12 billion, quarterly debt service could not exceed $330 million and it had to have at least three times debt service coverage.
The cap did not apply to the TFA's issuance of building aid bonds for school construction or recovery bonds issued after the Sept. 11, 2001, terrorist attacks.
It is cheaper for the city to borrow on the TFA's future tax-secured credit as they are more highly rated than its GO. For the past two years, the city has asked Albany to increase the debt limit on the TFA to no avail and it has had to issue new-money bonds for city capital projects under its GO credit.
Moody's Investors Service rates the TFA's senior future tax-secured bonds Aa1 and the subordinate bonds Aa2, compared to Aa3 for city GOs. Fitch Ratings assigns its AA-plus rating to the TFA bonds and its AA-minus to city GOs. Standard & Poor's rates the TFA bonds AAA and city GOs AA.
Under the new law, the bonds are no longer subject to a maximum issuance limit. The senior-lien bonds are still subject to a $12 billion cap as well as the debt service requirements, but that cap will be for outstanding debt rather than aggregate issuance.
As the senior bonds are paid down, the city can issue more new-money debt on that credit. There is now no limit on subordinate bonds other than the city's debt cap. The city's debt cap is currently roughly $75 billion, of which $28 billion is available.
"What we have now, in lieu of a fixed debt cap, is a debt cap that grows with the city's economy," New York City director of investor relations Raymond Orlando said in a e-mail.
JPMorgan will senior manage an $800 million fixed-rate, tax-exempt piece of the deal while $100 million of taxable bonds will price competitively. The tax-exempt bonds will price on Thursday following a two-day retail order period. The taxable bonds will also price on Thursday.
A.C. Advisory Inc. and Public Resources Advisory Group are financial advisers on the deal. Sidley Austin LLP is bond counsel.