MAYOR GIULIANI: BOND RATINGS FOR THE TRANSITIONAL FINANCE AUTHORITY WILL BENEFIT TAXPAYERS
Authority's Combined Ratings Will Be Among The Highest In The State -- Exceed Both The State's And City's Ratings
Mayor Rudolph W. Giuliani has been informed that the newly created New York City Transitional Finance Authority can expect to receive the following credit ratings:
- Standard & Poor's Corporation "AA"
- Fitch Investors Service "AA+"
- Moody's Investors Service "A2"
- Duff & Phelps Credit Rating Co. "AAA"
The extremely high credit ratings received by the Authority are the result of an innovative approach that the Administration pursued to take advantage of new developments in the asset-backed finance market and to capitalize on the strength of the reinvigorated New York City economy. Rather than creating a traditional revenue bond program for the Authority, the City employed the same structured financing tools that have allowed corporations to minimize their cost of capital.
"These credit ratings will benefit each and every New York City taxpayer by lowering the cost of the City's debt burden," said Mayor Giuliani. "The Authority's borrowing program will lower the cost of schools, parks, bridges, and other capital projects throughout the City, making the capital program less expensive for the taxpayers of the City."
Structured financings receive credit ratings in the highest categories due to the strength of their legal structures and pledged cashflows. The Authority's enabling legislation, which was conceptualized by the Giuliani administration and enacted by the State legislature and the Governor in March 1997, was specifically crafted to meet the structured financing criteria. The Authority is bankruptcy remote and its assets are fully segregated from the City. Both the City and the State are bound by statutory covenants prohibiting actions that would impair bondholders. The revenues of the Authority are not subject to appropriation and the bondholders receive the benefit of a first perfected security interest in the statutorily pledged revenues.
"With this financing program, the City continues its leadership as the most sophisticated and creative municipal issuer in the country," said Joseph J. Lhota, City Budget Director and Chairman of the Authority. "The inception of the Authority's program is a groundbreaking event for public finance, and represents the first time that a municipality has received high structured finance credit ratings based on a pledge of future tax receipts."
The Authority was created to provide an alternative financing vehicle to fund the City's ongoing capital program. The State Constitution limits the amount of the City's general obligation debt based on taxable property values. Without the bonding capacity of the Authority, the City would have been forced to end its capital program earlier this year. It is important to note that the total size of the City's capital plan is not affected by the Authority. The only change from the perspective of New York City residents is that they will be paying less to finance essential capital infrastructure improvements in the City.
The Authority's inaugural issuance of approximately $650 million in bonds is scheduled for late September. The Authority's senior managing underwriters are Lehman Brothers, Bear Stearns & Co. and Morgan Stanley Dean Witter.
The City's current general obligation credit ratings are "Baa1" from Moody's; "BBB+" from Standard & Poor's; and "A-" from Fitch. Duff & Phelps does not rate the City's general obligation debt.
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