New York University could seek bondholder approval to let it out of debt service reserve requirements for bonds that have surety bonds issued by downgraded insurers, following the approval yesterday by the board of the Dormitory Authority of the State of New York of amendments to the resolution those bonds were issued under.
DASNY issued two series of bonds on behalf of NYU under a 1998 resolution that generally required the university to maintain a debt service reserve fund that was funded at the maximum annual debt service of those bonds, according to a description of the resolution in a letter to board members from Nixon Peabody LLP.
NYU met that requirement with a surety bond issued by MBIA Insurance Corp. for Series 1998A bonds issued at a par of $250 million and a surety bond issued by Ambac Assurance Corp. on Series 2001A bonds that were issued at a par of $123.6 million.
Under the resolution, a provider of the surety bonds needed to have a rating in the highest category or else the borrower would have to replace the surety bonds, fund the debt service reserve with cash, or obtain a letter of credit. Both Ambac and MBIA lost their triple-A ratings last year, triggering the requirement that NYU take action.
Since then, the New York City school has begun to fund its debt service reserve, depositing approximately $900,000 into a reserve fund but the cash option would require that the university deposit a total of $15.7 million of cash or securities.
Amending the bond documents would require the approval of a majority of bondholders.
Martin Dorph, NYU senior vice president for finance and budget, said the school hasn't yet decided on a course of action, though funding the reserve with cash isn't being considered.
"We have not yet committed to seeking bondholder approval - what we did was get permission [to do so]," Dorph said. "We're still working on the possibility of getting a letter of credit or another surety."
When the bonds were sold, NYU didn't have a credit rating, but it is now rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's. Fitch Ratings does not rate NYU.
About 60 DASNY-issued bonds have surety bonds associated with them, but the specific requirements regarding downgrades of the surety providers varies on a case by case basis, DASNY staff said.
DASNY yesterday also approved the issuance of up to $28 million of personal income tax bonds to finance enhanced wireless 911 emergency services infrastructure. Citi will lead manage the sale, which is expected to go to market next month as part of a larger PIT deal. The bonds will be marketed as fixed or variable rate with maturities up to 10 years. Sidley Austin LLP is bond counsel.
The board also gave initial approval to issue up to $62 million of bonds on behalf of Samaritan Medical Center in Watertown. The medical center expects to use proceeds from the bonds to finance the construction of a new patient tower and parking garage and to refinance $2.5 million of bonds issued in 1998 by the New York State Housing Finance Agency.
Yesterday's meeting was the first attended by new board member Jacques Jiha, who was appointed by Gov. David Paterson and approved by the Senate last month. Jiha has served as co-director of the New York Local Government Assistance Corp., and deputy comptroller for pension investment and public finance at the state comptroller's office. He is currently an executive vice president and chief financial officer of Earl G. Graves Ltd., a multimedia company.
