Contact: Colleen Roche (212) 788-2958
Curt Ritter, Mayor's Press Office (212) 788-2971
David Neustadt, Comptroller's Press Office (212) 669-2591
Mayor Rudolph W. Giuliani and Comptroller Alan G. Hevesi today announced the results of a sale of approximately $622 million of Fiscal 1998 Series J and K New York City General Obligation Refunding Bonds. The sale contained approximately $575 million in tax-exempt bonds and $47 million in taxable bonds. Demand for the New York City General Obligation Bonds was unusually strong, including demand by individual investors for $260 million of bonds during a two-day retail pre-sale order period.
Morgan Stanley Dean Witter served as book-running senior manager with Goldman, Sachs & Co., J.P. Morgan & Co. and Salomon Smith Barney serving as co-senior managers on the $575 million of tax-exempt refunding bonds. The financing was a refunding of previously issued City debt which resulted in present value savings of approximately $35 million, or 5.4 percent of the amount of refunded bonds, and produced approximately $41 million of net budget relief for the City.
The refunding incorporated an innovative financing structure designed by book-running senior managing underwriter Morgan Stanley Dean Witter. The City contributed approximately $70 million of its FY98 budget surplus to defease high-cost, currently outstanding New York City General Obligation bonds. Those outstanding New York City General Obligation bonds had been issued to refund other City bonds. Under current tax law, these bonds could not be refunded using tax-exempt bonds. This structure resulted in a more efficient refunding than would otherwise have been the case, producing higher savings than would have been achieved in a traditional refunding. The City rewarded Morgan Stanley Dean Witter for proposing this idea by elevating the firm from senior co-managing underwriter to book-running senior manager for this financing.
Credit spreads on the City's General Obligation bonds continued to improve relative to the rest of the municipal market. Interest rates on the longer maturities in this bond sale were less than 30 basis points above interest rates on triple A rated municipal bonds. In the April 1998 City General Obligation financing in April, the yields on the longer City bonds were 35-40 basis points higher than triple A yields.
"The continued strong demand by investors, particularly during the retail order period, is a real vote of confidence in the prudent fiscal policies of this administration and in the economic revival of the City," said Mayor Rudolph W. Giuliani. "The resulting reduction in interest rates on City bonds compared to the marketplace as a whole produces significant savings for the City."
"I am pleased that this innovative approach has allowed the City to reduce debt costs beyond the savings associated with a traditional refunding of high interest debt," said City Comptroller Alan Hevesi. "The City has benefited from encouraging new ideas."
The bonds received strong interest from both retail and institutional investors. The $260 million of retail pre-sale orders was the fifth highest of the 20 City retail order periods. Institutional investors submitted approximately $297 million of priority orders. Total orders including syndicate member orders plus retention bonds exceeded $1.3 billion.
Seven bids were received on four maturities of taxable bonds totaling approximately $47 million, which were offered by advertised competitive bidding. The winning bidder was Morgan Stanley Dean Witter.