New York City’s new bond deals, debt management bolster capital plans

Fresh off two successful municipal bond sales, the city of New York plans to keep moving ahead with the bond issuance that funds its capital program.

On June 1, the city sold $1.56 billion of general obligation bonds in a deal comprised of $1.41 billion of tax-exempts and $151 million of taxables. Proceeds refinanced outstanding bonds for savings.

The city saw more than $108 million in total debt service savings, which was spread across fiscal 2024 through 2027.

To get additional savings, the city also held a tender offer to purchase back outstanding bonds from bondholders.

The city received nearly 1,200 offers from bondholders during the tender process for a total of about $454 million, or 40% of the outstanding principal of the bonds. The city will purchase $353 million of the bonds offered or about 78% of the total amount offered for tender.

A city official said the level of bondholder participation made this tender offer one of the most successful solicitations in the municipal bond market to date.

“We were really pleased with the results on the tender transaction,” said Tim Martin, assistant comptroller for public finance. “We were really holding our breath in the weeks leading up to it, with all the happenings limit that were going down in Washington around the debt limit.”

Martin told The Bond Buyer that the city had been looking since late last year for an opportunity to flip from taxable to tax-exempt advance refunding bonds sold in December 2020.

“So with the last of the escrows expiring in April — and the combination of being able to combine it with a current refunding of bonds that have an Aug. 1, 2023, call date — the city was able to structure a pretty unique transaction to deliver the city quite a bit of savings and have the tender and the current refunding wrap around each other and accomplish all of our goals of getting savings in every year and structuring the bulk of the savings in the plan years as we normally do. We did that because of the unpredictability of where the tender participation was going to come in,” he said Wednesday.

Martin said that by combining the two transactions, the city was able to get a single plan of finance with the result looking exactly like a normal refunding.

The offer generated roughly $26 million of total debt service savings, or 24% of the total savings achieved in the overall deal.

Jefferies and Siebert Williams Shank were dealer-mangers on the tender transaction.

The tax-exempt negotiated deal also saw high investor demand, with almost $2.2 billion of orders during the retail order period, the highest in recent history, according to the city.

“With rates being higher, we’ve seen a return of retail investors and there was a lot of pent-up demand,” Martin said. “I think once a budget deal was struck in Washington and the way our bonds were structured and the way retail participates, we saw over $2.1 billion of retail orders, which was the highest on record for the city and we were really happy with that result.”

He noted that this helped drive prices going into the institutional order period, which drew more than $6.4 billion of orders. Overall, the deal was about 6.1 times oversubscribed.

Yields on the tax-exempts were cut as much as 12 basis points on the long end, with final yields ranging from 3.12% in 2025 to 3.64% in 2039.

During the order period for the taxables, the city received indications of interest of about $274 million, making it about 1.8 times oversubscribed. Given demand, taxable yields were cut seven basis points in 2025; final yields were 5.13% in 2024 and 4.81% in 2025.

The city’s GOs are rated Aa2 by Moody’s Investors Service, AA by S&P Global Ratings and Fitch Ratings and AA-plus by Kroll Bond Rating Agency.

Jefferies priced the deal with 27 co-managers.

PRAG and Acacia financial Group were the municipal advisors and Norton Rose Fulbright and Bryant Rabbino were the bond counsel.

On Thursday, the city’s Housing Development Corp. priced $646.37 million of multi-family housing revenue bonds not subject to the alternative minimum tax. The deal, rated Aa2 by Moody’s and AA-plus by S&P, was priced by Barclays Capital, Loop Capital Markets and TD Securities.

There were 13 co-managers on the deal. Hawkins Delafield & Wood was the bond counsel.

The city is one of the biggest issuers of municipal bonds in the nation. In the second quarter of fiscal 2023, it had about $39.3 billion of GO bonds outstanding. Separately, the city’s Transitional Finance Authority and Municipal Water Finance Authority have $45.1 billion and $32.3 billion outstanding respectively.

New York City finances its capital program primarily through the issuance of municipal bonds. The funds construct and maintain infrastructure citywide, including roads, schools, bridges, water and sewer facilities, and transportation systems.

The executive 10-year capital strategy for 2024 through 2033 totals $164.8 billion in all funds.

The fiscal 2024 executive capital commitment plan totals $20.14 billion, of which $18.92 billion is funded by the city.

“When you look at the city’s financial plan, the financing amounts are significant,” said Jay Olson, the new deputy comptroller for public finance.

“The capital program is large and justifiably so, so there’s a lot of volume to deal with just in terms of financing ongoing capital construction and capital improvement for the year and dealing with refunding opportunities that hopefully will come up,” he told The Bond Buyer on Wednesday.

Olson said that since 2017 with the tax reform that took tax-exempt advance refundings off the table, the city is now focused on looking at when bonds come up that are eligible for a tax-exempt current refunding that sort of anchors whether those opportunities arise, market permitting.

He noted he was focused on what needed to be done to finance the new capital, manage the existing debt outstanding and refinance when and where available.

“So it’s really a full to-do list in terms of the new money issuance, the refunding issuance — if the market holds up — plus everything else that needs to happen in terms of ongoing legal disclosures, rating agency work, managing the floating-rate portfolios. There’s a lot to be done here,” he said.

He said that despite possible economic headwinds, his focus would remain the same.

“We always have to move forward and finance our capital program, as we have through every sort of era imaginable,” he said.

“Even though you’ve caught me here on my fourth day on the job, I’ve been at the OMB continuously since July 1998,” he said.

“We were financing after Sept. 11, and that had its challenges. We were financing in 2008 during the Great Recession where the financial markets were incredibly challenging,” Olson said.

“During 2020 when COVID came down, the market did shut down,” he said, “but when it came up, we got the machine back running with finance and capital spending even though none of us could go back to our offices.”

Olson, who started his new job at the comptroller’s office on Monday, has more than 20 years of experience in the city’s public finance market. He was most recently senior assistant director at the Office of Management and Budget.

He is now in charge of the Bureau of Public Finance, which manages all aspects of city borrowing for Comptroller Brad Lander, including municipal bond issuance and managing risks to identify money-saving opportunities.

The bureau works closely with the mayor’s office on bonds that fund infrastructure needs and other capital projects. Its aim is to improve the city’s financial position by establishing and enforcing fiscally responsible borrowing practices.

Martin said the city is always looking at ways of accessing other areas of demand to buy its bonds.

“If you look at what we’ve done over the past several years, we have a lot of tools in our toolbox — the adjustable-rate remarketing securities, variable-rate bonds, stepped-coupon bonds, ESG bonds — all things that are available to allow us to access different pockets of demand and make big deals small and help keep interest-rate costs as low as possible for the city,” he said.

In April, Mayor Eric Adams proposed a $106.7 billion executive budget for fiscal 2024, which is now being negotiated between the OMB and City Council. By law, the mayor and council must agree on a balanced budget by July 1, which will be certified by the state’s Financial Control Board later in the year.