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New York Mayor Zohran Mamdani and Comptroller Mark Levine are at the center of a groundbreaking ceremony in July.<\/p>\n New York Mayor Zohran Mamdani and Comptroller Mark Levine are at the center of a groundbreaking ceremony in July.<\/p>\n
Bloomberg News<\/p>\n
New York City’s budget crisis at the beginning of the year had observers worried. But never so worried that it would struggle to place its debt.<\/p>\n
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Coming off the heels of an oversubscribed general obligation deal, the city plans to price nearly $2 billion of bonds Wednesday through its Transitional Finance Authority.\u00a0<\/p>\n
In the last three years, spreads on New York City bonds have weathered an influx of migrant asylum seekers, a federal indictment of the then-mayor, a $12 billion budget gap and subsequent negative outlooks on its bond ratings. With that track record, market participants say, the TFA deal \u2014 which comes with higher ratings than the city’s GOs \u2014 probably won’t hit many problems.\u00a0<\/p>\n
The TFA deal will have both a negotiated and a competitive component.<\/p>\n
The negotiated side of the deal is set to consist of $1.5 billion of tax-exempt bonds, maturing from 2027 through 2031 and from 2040 through 2054. <\/p>\n
The competitive series of the deal is planned to be $415 million of taxable bonds, maturing from 2031 through 2039, callable in 2036.<\/p>\n
Both sides of the deal are set to price on Wednesday, with a retail order period for the negotiated bonds on Tuesday.<\/p>\n
Loop Capital Markets is the book running lead manager, with seven co-senior managers and 17 co-managers. PRAG and Frasca & Associates are co-financial advisors. Bryant Rabbino and Norton Rose Fulbright are co-bond counsels, with Hawkins Delafield and Wood and D. Seaton and Associates as co-special disclosure counsels.<\/p>\n
The deal is rated Aa1 with a negative outlook by Moody’s Ratings, and AAA with a stable outlook by Fitch Ratings and S&P Global Ratings.<\/p>\n
Moody’s outlook for the deal corresponds with its negative outlook for the city, according to its rating report.<\/p>\n
“The negative outlook reflects New York City’s updated spending projections, which give rise to larger multi-year budget gaps than previously forecast,” Moody’s analysts wrote. “That the city projects large and persistent imbalances under still-favorable economic and revenue conditions highlights the extent of its underlying structural budget challenges.”<\/p>\n
The bonds are secured by New York City’s personal income tax revenue; if PIT revenue is projected to be insufficient to cover at least 150% of maximum annual debt service, the city’s sales tax revenue will also be allocated for debt service.<\/p>\n
The bonds do not require city or state appropriations, according to the investor presentation about the deal; the state comptroller pays the PIT revenue directly to the bonds’ trustee.\u00a0<\/p>\n
The bonds have “pretty strong safeguards to prevent overleveraging,” said Evercore’s Howard Cure.\u00a0<\/p>\n
Cure echoed the TFA’s assurances that the debt service doesn’t need appropriations: “Really, it’s hard to imagine the city getting their hands on the money until debt service is paid.”<\/p>\n
In fiscal 2025, PIT revenues totaled approximately $28.8 billion and debt service coverage was 7.59x, according to the investor presentation. Annual coverage is projected to be at least 5.08x in fiscal years 2026 to 2030.<\/p>\n
The city issued $1.5 billion of general obligation bonds earlier this month. The deal was 6.6 times oversubscribed, according to a statement from Andrew Rothbaum, director of investor relations for the mayor’s Office of Management and Budget. Investor demand reduced yields by up to nine basis points, Rothbaum said.\u00a0<\/p>\n
Yields ranged from 2.70% in 2028 to 4.81% in 2052. The 2028 bonds were 14 basis points wider than the AAA scale for that day, according to LSEG data; the 2052 bonds were 44 basis points wider.\u00a0<\/p>\n
RBC Capital Markets was the book-running lead manager for the deal, with seven co-senior managers.\u00a0<\/p>\n
At Wednesday’s meeting of the New York State Financial Control Board, city Comptroller Mark Levine discussed the yields on the city’s bonds.\u00a0<\/p>\n
“I know there’s been some attention paid to a recent increase in bond yields, so let me address that directly. That movement does not reflect an eroding tax base or an expectation of a rating downtrend,” Levine said. “The yields simply followed broader market dynamics, and the city’s credit remains strong.”<\/p>\n
John Hallacy, president of John Hallacy Consulting, agreed \u2014 New York’s spreads have generally sat around 30 basis points wider than the AAA scale lately, he said.<\/p>\n
The city’s GO bonds are rated Aa2 with a negative outlook by Moody’s, AA with a stable outlook by S&P Global Ratings, AA with a negative outlook by Fitch Ratings, and AA-plus with a stable outlook by KBRA.\u00a0<\/p>\n
Moody’s, Fitch and KBRA lowered their outlooks on the city’s rating to negative from stable in March, in light of its budget dilemma \u2014 and in response to Mamdani’s budget proposal, which would have raised property taxes and spent much of the city’s reserves.\u00a0<\/p>\n