May 9, 2020 – Ahead of a $726 million tax-exempt and taxable subordinate-lien bond sale next week, rating agencies affirmed on Friday the ratings for New York City’s Transitional Finance Authority (TFA).
The bonds are officially called “Future Tax Secured” (FTS) bonds. While there are official two liens – senior and subordinate – TFA rarely issues bonds on a senior basis.
Moody’s rated the bonds “Aa1”, with negative outlook. S&P and Fitch rated the bonds “AAA”, with stable outlook.
New York City is the epicenter of the COVID-19 pandemic. Based on the City’s Department of Health data as of May 8 1pm, 19,702 confirmed and probable COVID-related deaths have been recorded. Both City and State have recorded fewer hospitalizations and deaths over the past two weeks, with fatalities peaking in early to mid April.
Both City and State are still under “lockdown”, with virtually all non-essential retail and businesses closed. Governor Cuomo has stated that some sectors namely construction, manufacturing and curb-side retail may reopen after the expiration of the May 15 “NY Pause Order”, but hinted that regions with extreme COVID-19 impacts like New York City may reopen later and on a more gradual phase.
In the City’s first budget since COVID-19 infections spiked, released on April 16, the Mayor forecasted a decline in tax revenues by $7.3 billion – $2.2 billion in Fiscal Year 2020 and $5.2 billion in Fiscal Year 2021. The City’s revenue losses were mitigated by drawdowns of reserves previously made while the economy and revenues were growing rapidly.
In its press release announcing the rating affirmations on Friday, Fitch said:
The ‘AAA’ ratings on the senior and subordinate FTS revenue bonds reflect the good long-term growth prospects for pledged FTS revenues, and highly resilient structure Fitch anticipates can withstand the current severe economic downturn and maintain solid debt service coverage (DSC). Fitch’s analysis indicates resilience would be strong, even if New York City fully leveraged the future tax-secured revenues up to their legally permitted amount, but issuance will likely fall well below that level as excess revenues flow to the city for general operations.
Based on investor outreach material posted on its website, TFA expects to sell bonds to retail investors next Tuesday and price for institutions on Wednesday, May 13.
Contact Karen Bigelow at KBigelow@buymuni.com
