NYC TFA to sell $1.6 billion of refunding bonds

The New York City Transitional Finance Authority is set to price a $1.6 billion refunding deal next week. 

The deal is standard for the agency, but national conditions are anything but standard. When it prices on Tuesday, it will test how uncertainties at the federal level have affected the market's appetite for New York debt. 

The negotiated deal consists of four tranches. The first series, $1.3 billion of tax-exempt Subseries F-1, has maturities from 2027 through 2040. The second, $81.4 million of taxable Subseries F-2, has maturities in 2026 and 2027. The third, $195.4 million of tax-exempt Subseries G-1, has maturities from 2026 through 2041. And the fourth, $42.2 million of taxable Subseries G-2, has maturities in 2025 and 2026. 

Siebert Williams Shank is the lead manager on the deal, with 25 co-managers. PRAG and Frasca & Associates are co-municipal advisors, with Norton Rose Fulbright and Bryant Rabbino as co-counsels. 

The deal received a AAA rating from S&P Global Ratings and Fitch Ratings and a Aa1 from Moody's Ratings. 

The TFA is a bankruptcy-remote financing vehicle for New York City. Its revenue, drawn from personal income tax and sales tax, comes directly from the state's collections, so its credit rating is higher than the city's. But the authority issues debt so frequently that its spreads are relatively the same as the city's direct issuances, according to Howard Cure, director of municipal bond research at Evercore Wealth Management.

The tax revenue that supports the TFA has performed well lately, Cure said, and general economic conditions in New York City have been strong. 

New York has "pretty strong revenues, better than they anticipated, and lower-than-budgeted migrant costs. The city has some out-year potential deficits, but I don't think anything insurmountable right now," Cure said. "The threat is cuts to some federal programs, and if the city and state are willing to make up the difference, and how would they fund that?"

Federal non-emergency revenue accounts for $8 billion, or around 7%, of New York City's fiscal year 2025 budget, according to a report from the city's comptroller last year. The city also benefits from tens of billions of dollars of federal grants to New York State. 

If that funding is rescinded, the city may have to plug holes in services like education, public housing, immigrant services, hospitals, mass transit or Medicare, Cure said. 

The budgetary impact of cutting those funds would be comparable to the impact of a natural disaster, Comptroller Brad Lander said last year. It could be severe enough to damage the city's credit rating, Cure said. Some deals lately have suffered from national uncertainty, said Cure. He estimates debt related to the California wildfires likely saw wider spreads because of threats of withholding aid. In Chicago, Cure added, threats to federal grants have had a stronger effect because of the city's existing fiscal stress.

"I don't think there's any noticeable spreads widening in large cities like New York," he said. "Chicago has its own issues [with its] budget, but New York really has been doing pretty well."

Other national uncertainties, such as the potential to eliminate the tax exemption for municipal bonds, are also unlikely to affect the deal, in Cure's view. 

"I don't think right now the market is factoring that in, but if they start to, you're going to see a big increase in issuance," Cure said.