New York’s Metropolitan Transportation Authority liked Build America Bonds so much that the majority of its debt issues over the past 13 months have been the new taxable bonds.
The MTA, which operates the largest mass transit system in the U.S., priced $750 million of BABs on April 23, 2009. Including that deal, the agency has sold $2.77 billion of BABs compared to $704.1 million of new-money tax-exempt deals over that period, according to Thomson Reuters.
“The BAB program has served its intended purpose to allow state and local governments and public authorities like the MTA to access capital at more attractive rates than they could have otherwise received in the tax-exempt market,” said finance director Patrick McCoy.
Yields have tightened since the authority sold its first batch of BABs on its dedicated tax-fund credit. That first deal priced with a 30-year maturity to yield 7.34%, 276 basis points above 30-year Treasuries that day, according to Thomson Reuters. On March 17, 2010, the MTA sold $443.2 million of BABs on the same credit. The pricing on 30-year bonds this time around yielded 6.09%, 150 basis points above 30-year Treasuries.
McCoy predicted spreads would continue to narrow.
“To the extent that the BAB program would be extended on a long-term basis, it would serve to tighten those spreads as investors grow more confident the program will be around in the future,” he said.
It’s not just yields that have become more favorable — takedown fees to underwriters have fallen in the past year, too.
“We are paying less than we were at the beginning of the program,” McCoy said. “For example, the long bond on this deal that we just closed, the DTF, we paid a takedown of 5/8s. A year ago on our first deal we paid a takedown of 7/8s. A year ago it was about $8.75 a bond, this time it’s $6.25.”