New York City will offer $1.2 billion of refunding general obligation bonds on Tuesday, marking its first deal of the fiscal year, just weeks after the
This test of the market’s appetite for Big Apple debt should be aced, one observer said.
“The city is in the market on a regular basis. So anybody who wants to own New York has had an opportunity to do so,” said Patrick Luby, head of municipal strategy at CreditSights. “With that said, there’s always demand for New York paper.”
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Wells Fargo is managing the deal, with 25 co-managers. The Public Resources Advisory Group and Frasca & Associates are serving as co-municipal advisors, and Norton Rose Fulbright and Bryant Rabbino are co-counsels.
The issuance has two tranches. Series A, $1.134 billion of bonds, has maturity dates in August 2025 through 2038, and a par call for bonds maturing after August of 2034; Series B’s $24 million of bonds have maturity dates from February 2025 through 2029. Both tranches are fixed-rate, multi-modal and tax-exempt.
The negotiated deal will have a retail order period on Monday and institutional pricing on Tuesday.
Fitch Ratings and S&P Global Ratings assigned the deal a AA rating. The other ratings for the deal have not yet been published, but its outstanding bonds are rated Aa2 by Moody’s Ratings and AA-plus by Kroll Bond Rating Agency.
Fitch’s report said its ratings for the city and the deal “reflect the city’s exceptionally strong budget monitoring and controls, supporting Fitch’s ‘aa’ financial resilience assessment given its ‘high’ revenue control, ‘mid-range’ expenditure control and Fitch’s expectation that the city will maintain reserves at or above 7.5% of spending.”
New York issuers redeemed $8.7 billion of bonds in June, and plan to redeem $6.1 billion in August. Some investors likely haven’t reinvested the funds from their redemption yet, Luby said, and this deal offers an opportunity to do so.
New York issues a lot of debt to support its capital plans. The city’s 2024-2028 Capital Commitment Plan involves $88.1 billion of investments, 95.2% of which will be funded by the city.
That plan will be funded through $29.4 billion of New York City GO bonds, $30.8 billion of future tax secured bonds from the city’s Transitional Finance Authority, and $10.6 billion of New York Municipal Water Finance Authority bonds.
The 2025 state budget
New York City plans to issue $5 billion of GOs in fiscal 2025, plus $7.5 billion through the TFA and $1.9 billion through the water authority. This refunding issuance is not included in that plan, nor is the
The two refunding deals were very similar, Luby noted, and most portfolio managers would likely view the city and its TFA as overlapping credits.
“So, when you have an enormous deal coming from TFA, that soaks up some of the demand. And having an enormous deal from the city kind of compounds that difficulty,” Luby said.
Portfolio managers “need to be alert to being overexposed to New York City,” Luby said. “For in-state accounts, that’s a challenge, because most of the issuers in the New York market are based in New York City and the New York City area.”
Investors are willing to take lower yields for bonds from New York issuers who tap the market less often, “just for the opportunity to get a different name into a portfolio,” Luby said. He cited the
But there’s not much New York City issuers can do about the city’s saturation in the market. As the biggest metropolitan area in the country, New York has immense capital needs, according to Jay Olson, New York City deputy comptroller for public finance.
“I think we are mindful of the market reception for our debt. But that said, the new money needs are considerable,” Olson said. “What we want to do [to] rehabilitate existing infrastructure and build new infrastructure isn’t necessarily calibrated to what the market is doing at that particular moment. … That capital program was set.”
The TFA sale was upsized into the largest issuance in its history, the agency announced after the deal was finalized. The $1.9 billion taxable tranches of the deal were 2.7x oversubscribed, receiving $4.5 billion of offers. The deal was ultimately upsized by $350 million, securing $263 million in debt service savings.
This deal has attractive qualities that could entice high demand, Luby said. The bonds have a short maturity schedule, with the longest maturity in 2038. Plus, sales tax collections in New York City have been up in the first half of the year compared to 2023.
Other economic factors in New York have been a mixed bag; Luby described the city’s credit conditions as “choppy.”
Fitch’s rating report said the city had weak demographic trends and mid-range economic trends, which were offset by high educational attainment levels and midrange income and unemployment. According to Fitch, the city also has an “exceptionally high liabilities to personal income metric of 27%.”
The city passed a $112.4 billion balanced budget before its deadline at the end of last month. The roadshow and offering statement for the issuance acknowledged the city’s billions of dollars of out-year budget gaps, and disclosed the gaps are likely underestimated.
New York City has $41.7 billion of outstanding debt, according to the roadshow, roughly half of which is scheduled to be retired within the next 10 years.
Meanwhile, the
The MTA’s budget does not directly impact New York City’s credit, but the city’s reliance on the subway means the MTA’s problems “cast a shadow” over the city’s fiscal outlook, Luby said.
The city has also been housing an influx of asylum seekers for nearly two years, with little support from the state and even less from the federal government.
A recent report from the city comptroller’s office found that “approximately 65,000 asylum seekers live in the emergency shelter system on top of the roughly 54,000 people already housed in the [Department of Homeless Services] system prior to July 2022.”
The city spent nearly a billion dollars on hotel rooms for the migrants between September 2022 and August 2024, according to the report. The cost of services for the migrants has declined significantly since the city limited how long it will provide housing for adult asylum seekers.