Port Authority diversifies its underwriting pool

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One of the nation’s largest transportation agencies is gearing up to issue $8 billion of bonds over the next three years with increased underwriting involvement from minority- and women-owned business enterprises.

The Port Authority of New York and New Jersey announced March 25 a new underwriting team that aligns with a policy adopted last year that called for increased participation from MWBEs for construction contracts and professional services.

The procurement process boosted MWBE participation at the senior manager level to 33% from 20% in the previous pool, according to the authority, and to 57% from 28% in the co-manager group. Service Disabled Veteran-Owned Business Enterprise (SDVOB) firms are at 14% in the co-manager group, up from 6%, and at 25% in the selling group, up from 20%.

Manhattan-based Rice Financial has been an underwriter for nearly $8 billion of Port Authority financings since 2010, which CEO Don Rice said has had “a material impact” on its success. Rice said the Port Authority’s increased focus on involving MWBEs with bond transactions would make a “tangible” difference toward the growth of other disadvantaged firms that have lower headcounts than big banks due to covering fewer clients. He credits New York Gov. Andrew Cuomo for spearheading improved opportunities for MWBE firms in public finance.

“The Port Authority’s actions with this underwriter selection process set an example that echoes the goals Governor Cuomo has established for bond issuers in the state of New York, and I am hopeful other issuers sit up and take notice,” said Rice, who formed Rice Financial in 1993 after beginning his career at Merrill Lynch.

The Port Authority is jointly controlled by the governors of New York and New Jersey.

“I believe it’s a win for everyone when municipalities and their partners demographically represent the people they serve,” Rice said.

“The $8 billion in bonds we plan to issue over the next three years requires extensive due diligence and market research to ensure we are getting the best financial terms possible,” Port Authority Executive Director Rick Cotton said in a statement. “We are confident that our new underwriting team — which includes significantly higher levels of MWBE and SDVOB participation — will give us a broad-based spectrum of expertise to support our broad underwriting program.”

The Port Authority’s 2018 policy requires the agency’s contractors to make “a good-faith effort” to achieve a 20% participation goal for sub-contractors with minority business enterprises and a 10% target with certified women-owned business enterprises. The bi-state agency’s previous guidelines were 12% for MBEs and 5% for WBEs. Port Authority spokesman Steve Coleman said the 2018 policy also included goals for increasing SDVOB involvement.

The new MWBE senior manager underwriting pool includes Samuel A. Ramirez & Co. and Siebert Cisneros Shank & Co. The co-manager underwriting pool includes MWBEs Rice Financial Products Co., Loop Capital Markets and Blaylock Van as well as Academy Securities, an SDVOB firm. The selling group features MWBEs Backstrom McCarley Berry Co., Rockfleet Financial Services and The Williams Capital Group along with SDVOB firms Drexel Hamilton and Mischler Financial Group.

The Port Authority’s push to include more minority, woman and veteran-owned firms in upcoming bond deals mirrors an initiative set forth by Cuomo to boost the state’s MWBE utilization rate to 30%. Cuomo said last October that the rate of using state contracts was the highest in the nation at 28.62% for fiscal 2018 compared to less than 10% when he took office in 2011. The Democratic governor also announced that the 30% MWBE goal was met for the Port Authority’s planned $13 billion redevelopment of John. F. Kennedy International Airport.

New York City Comptroller Scott Stringer has also been aggressively advocating for more MWBE contracts through a series of workshops his office has hosted in the past year.

“New York City’s diversity is its strength and that’s why empowering businesses owned by women and people of color has been a cornerstone of our efforts in the Comptroller’s office,” Stringer said in a statement.

“I applaud the Port Authority for increasing MWBE participation in their underwriting team and using their considerable weight to send a loud and clear message that it’s time to build equity and fairness in the public finance space,” he said.

“We believe the new underwriting pool provides us with top flight financial experts to assist agency staff in making the right decisions when dealing with the bond market,” Port Authority Chairman Kevin O’Toole said in a statement. “We also are delighted that participation by veteran and minority-owned businesses has increased, providing an opportunity for these professional service firms to become part of our underwriting pool.”

Chance Mims, CEO of Academy Securities, said he hopes the Port Authority’s action spurs more opportunities for SDVOB firms to participate in major bond deals. He said an issuer as large as the Port Authority promoting the value of hiring firms that employ military veterans sends a loud statement and has the potential for a positive domino effect throughout the industry.

“The example the Port Authority is setting is incredible,” said Mims, who founded Academy in 2009 and previously served as a naval officer. “It’s exciting to see public finance firms take the lead on this.”

Accompanying the MWBE and SDVOB are several veteran firms to the municipal bond market including senior managers Bank of America Merrill Lynch, Citibank Global Markets, Goldman Sachs and UBS Financial Services. The co-manager underwriting pool also includes J.P. Morgan Securities, Jefferies, and Oppenheimer & Co. Also participating in the selling group are FTN Financial Capital Markets, NW Capital Markets, Stern Brothers & Co, and Stifel, Nicolaus.

The $8 billion of borrowing plans to tackle various infrastructure projects in the Port Authority’s 10-year $32 billion capital plan adopted two years. Initiatives already underway include a restoration of the George Washington Bridge; building a new main terminal at Newark Liberty International Airport; redeveloping LaGuardia Airport; rehabbing runways at JFK Airport and upgrading the PATH signal system. Coleman said the agency hasn’t determined yet how much debt it will issue in each of the three years.

The Port Authority is rated Aa3 by Moody’s Investors Service and AA-minus by S&P Global Ratings and Fitch Rating. The agency’s outstanding bonded debt totaled $22.1 billion at the end of 2018, according to its year-end financial statement.

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