29.09.2015, 09:17
Fitch Rates NYC Transitional Finance Auth's $217MM Bank Bonds 'AAA'; Outlook Stable
OREANDA-NEWS. Fitch Ratings assigns an 'AAA' rating to bank bonds associated with the following New York City Transitional Finance Authority (TFA) subordinate adjustable-rate future tax secured (FTS) bonds:
--\\$100,000,000 fiscal 2016 series A, subseries A-4;
--\\$50,000,000 fiscal 2015 series A, subseries A-5;
--\\$66,700,000 New York City recovery bonds fiscal 2003 series 3, subseries 3G.
The fiscal 2015 series A, subseries A-4 bonds will have liquidity support provided by a Standby Bond Purchase Agreement (SBPA) with Bank of America N.A. The fiscal 2015 series A, subseries A-5 bonds will have liquidity support from an SBPA with Royal Bank of Canada. Each SBPA has a stated expiration date of Sept. 28, 2018. The fiscal 2003 series 3, subseries 3G New York City recovery bonds will have liquidity support from an amended and restated SBPA provided by Bank of New York Mellon. This SBPA has been extended to Oct. 1, 2018.
Based on a review of the terms governing bank bonds specified in the associated agreement, it is Fitch's opinion that the incremental risk associated with bank bonds does not have a material impact on TFA's long-term credit rating.
SECURITY
The bonds are payable from revenues derived from a personal income tax (PIT) and a sales and use tax imposed by New York City (the city), as authorized by New York State (the state). Payment of the PIT and sales tax revenue to the TFA is not subject to city or state appropriation.
Sales tax revenues will be available for the payment of bonds if PIT revenues are projected to be insufficient to provide at least 150% of the maximum annual debt service (MADS) on the TFA's outstanding bonds. Senior bonds are subject to a \\$330 million limit on quarterly debt service. Additional bonds may be issued as senior bonds if tax revenue for the 12 consecutive calendar months preceding authorization is at least 3x the amount of annual senior debt service or \\$1.32 billion. The subordinate additional bonds test (ABT) requires that tax revenues for the most recent fiscal year are at least 3x the sum of \\$1.32 billion plus projected subordinate debt service.
KEY RATING DRIVERS
STRONG LEGAL FRAMEWORK: The bankruptcy-remote, statutorily defined nature of the issuer and a bond structure involving a first-perfected security interest in the PIT and sales tax revenues are key credit strengths. Payment of the PIT and sales tax revenue to the TFA is not subject to city or state appropriation. Statutory covenants prohibit action that would impair bondholders.
TAX RATE RISK LOW: The state can unilaterally modify or repeal tax law as it relates to the PIT or sales tax. Fitch believes that the risk of this is negligible.
STATUTORY CASH FLOW PROVISIONS: The PIT and sales tax are imposed by the city pursuant to state statute and collected by the state. Revenues from the PIT (and the sales tax, if required) flow directly from the state comptroller to the TFA trustee. The city receives residual revenues only after advance quarterly funding of debt service.
ROBUST COVERAGE: Fitch does not make a rating distinction between the liens due to the high coverage levels and strong protections against overleveraging. Even with sizable debt issuance plans over the next four years, pro forma coverage through 2019 is expected to remain strong at over 6x.
SOLID ECONOMIC UNDERPINNINGS: Statutory revenues are derived from a broad economic base, benefiting from the city's unique role as a national and international center for commerce and culture.
DEPENDENCE ON WALL STREET: Financial activities account for about 11% of jobs and 27% of earnings. Recession-related job declines were well under comparable national averages. Overall employment has since shown solid growth although weakness in financial services employment is evident.
RATING SENSITIVITIES
While TFA revenues are vulnerable to downsize risk, Fitch believes the bonds are well protected from a potential rating downgrade by both legal provisions (3x ABT) and practical considerations. The city relies heavily on residual pledged revenues, whose growth reflects the city's continuing solid economic underpinnings, for its operating budget.
--\\$100,000,000 fiscal 2016 series A, subseries A-4;
--\\$50,000,000 fiscal 2015 series A, subseries A-5;
--\\$66,700,000 New York City recovery bonds fiscal 2003 series 3, subseries 3G.
The fiscal 2015 series A, subseries A-4 bonds will have liquidity support provided by a Standby Bond Purchase Agreement (SBPA) with Bank of America N.A. The fiscal 2015 series A, subseries A-5 bonds will have liquidity support from an SBPA with Royal Bank of Canada. Each SBPA has a stated expiration date of Sept. 28, 2018. The fiscal 2003 series 3, subseries 3G New York City recovery bonds will have liquidity support from an amended and restated SBPA provided by Bank of New York Mellon. This SBPA has been extended to Oct. 1, 2018.
Based on a review of the terms governing bank bonds specified in the associated agreement, it is Fitch's opinion that the incremental risk associated with bank bonds does not have a material impact on TFA's long-term credit rating.
SECURITY
The bonds are payable from revenues derived from a personal income tax (PIT) and a sales and use tax imposed by New York City (the city), as authorized by New York State (the state). Payment of the PIT and sales tax revenue to the TFA is not subject to city or state appropriation.
Sales tax revenues will be available for the payment of bonds if PIT revenues are projected to be insufficient to provide at least 150% of the maximum annual debt service (MADS) on the TFA's outstanding bonds. Senior bonds are subject to a \\$330 million limit on quarterly debt service. Additional bonds may be issued as senior bonds if tax revenue for the 12 consecutive calendar months preceding authorization is at least 3x the amount of annual senior debt service or \\$1.32 billion. The subordinate additional bonds test (ABT) requires that tax revenues for the most recent fiscal year are at least 3x the sum of \\$1.32 billion plus projected subordinate debt service.
KEY RATING DRIVERS
STRONG LEGAL FRAMEWORK: The bankruptcy-remote, statutorily defined nature of the issuer and a bond structure involving a first-perfected security interest in the PIT and sales tax revenues are key credit strengths. Payment of the PIT and sales tax revenue to the TFA is not subject to city or state appropriation. Statutory covenants prohibit action that would impair bondholders.
TAX RATE RISK LOW: The state can unilaterally modify or repeal tax law as it relates to the PIT or sales tax. Fitch believes that the risk of this is negligible.
STATUTORY CASH FLOW PROVISIONS: The PIT and sales tax are imposed by the city pursuant to state statute and collected by the state. Revenues from the PIT (and the sales tax, if required) flow directly from the state comptroller to the TFA trustee. The city receives residual revenues only after advance quarterly funding of debt service.
ROBUST COVERAGE: Fitch does not make a rating distinction between the liens due to the high coverage levels and strong protections against overleveraging. Even with sizable debt issuance plans over the next four years, pro forma coverage through 2019 is expected to remain strong at over 6x.
SOLID ECONOMIC UNDERPINNINGS: Statutory revenues are derived from a broad economic base, benefiting from the city's unique role as a national and international center for commerce and culture.
DEPENDENCE ON WALL STREET: Financial activities account for about 11% of jobs and 27% of earnings. Recession-related job declines were well under comparable national averages. Overall employment has since shown solid growth although weakness in financial services employment is evident.
RATING SENSITIVITIES
While TFA revenues are vulnerable to downsize risk, Fitch believes the bonds are well protected from a potential rating downgrade by both legal provisions (3x ABT) and practical considerations. The city relies heavily on residual pledged revenues, whose growth reflects the city's continuing solid economic underpinnings, for its operating budget.
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