New York Gov. David Paterson issued an executive order Friday that clears the way for the state to issue the largest-ever recovery zone facility bond offering before the program's Dec. 31 expiration.
The order deemed RZFB allocations that were not expected to be used to have been waived back to the state. Paterson directed the Empire State Development Corp. to reallocate the capacity so it can be used for development at the World Trade Center site. The New York Liberty Development Corp., a subsidiary of the ESDC, plans to market $285 million of RZFBs on behalf of Silverstein Properties Inc. on Wednesday.
"During this time of economic uncertainty, it is vital that we take advantage of the recovery zone facility bond program to help create jobs, foster economic development and develop critical infrastructure," Paterson said in a news release. "Without the executive order the recovery zone bond capacity could not be used and would be lost to the state."
Most of the bond proceeds will be escrowed in demand-deposit U.S. Treasury Securities State and Local Government Series. Up to 5% of the proceeds may be held in cash or invested in certain other Treasury securities, according to the preliminary official statement. The bond proceeds are anticipated to be taken out of escrow and used to help finance 3 World Trade Center, a 71-story office tower.
Winston & Strawn LLP is bond counsel. Goldman, Sachs & Co. is the underwriter.
The bonds will be offered in two series with the bulk of the issuance in one and a much smaller amount in another series to be used for capitalized interest. The RZFBs will be subject to mandatory tender on Oct. 20, 2011.
Congress created the RZFB program last year in the American Recovery and Reinvestment Act. The private-activity bond program allocated $15 billion of RZFBs directly to counties and large municipalities. The bonds were intended to provide tax-exempt financing for commercial projects in economically distressed areas designated as Recovery Zones.
New York's counties and cities were allocated $555.1 million of the tax-exempt private-activity bonds, but only a handful of deals have closed. New York City and Erie County have been notable exceptions in the state that have gotten deals out the door in a tough credit environment.
Albany asked cities and counties that weren't planning to use their allocations to voluntarily waive them back to the state but that effort had limited success, with only about $40 million of RZFBs being voluntarily waived.
Many states relied on a provision in Internal Revenue Service guidance that said states could reallocate bonds that were "deemed waived," but New York sought unsuccessfully for clarification of the provision.
Use of RZFBs for World Trade Center development was first publicly brought up at an Liberty Development Corp. board meeting last month as the agency finalized plans to refund tax-exempt Liberty bonds for the project. Last year the LDC sold $2.59 billion of Liberty bonds on behalf of Silverstein.
The proceeds were escrowed because they could not be used at the time. The LDC expected to refund $1.3 billion of the bonds as long-term debt earlier this month to finance construction of 4 World Trade Center, a 64-story office tower, but that deal was postponed due to market volatility.
Under an agreement with the Port Authority of New York and New Jersey, which owns the site, Silverstein plans to build a podium for 3 WTC and to complete the building when it has commitments to lease a significant portion of the tower.