Fitch Rates New York City Transitional Finance Authority's $850MM Bonds 'AAA'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AAA' rating to the following New York City Transitional Finance Authority (TFA) future tax secured bonds, fiscal 2011 series A:

--$470,000,000 subseries A-1 taxable subordinate bonds (Build America Bonds);

--$125,000,000 subseries A-2 taxable subordinate bonds (Qualified School Construction Bonds);

--$155,000,000 subseries A-3 tax-exempt subordinate bonds;

--$100,000,000 subseries A-4 tax-exempt subordinate bonds (adjustable rate bonds).

The fixed-rate bonds will be sold through negotiation the week of Aug. 2, 2010. The subseries A-4 bonds will be privately placed.

In addition, Fitch has affirmed the 'AAA' ratings on the following outstanding TFA future tax secured bonds:

--$6.6 billion senior bonds;

--$1.5 billion recovery subordinate bonds;

--$7.8 billion other subordinate bonds.

Although senior bonds have a first claim on statutory revenues, Fitch does not make a rating distinction between the liens due to the high coverage levels.

The Rating Outlook is Stable.

RATING RATIONALE:

--The legal structure is very strong, specifically the bankruptcy-remote, statutorily defined nature of the issuer, the bond structure involving a first perfected security interest in revenues that are not subject to appropriation, and statutory covenants prohibiting action that would impair bondholders.

--Statutory revenues consist of two separately levied cash flow streams with New York State as the collection agent.

--Statutory revenues provide wide coverage of maximum annual debt service (MADS).

KEY RATING DRIVER:

Continued strong coverage of debt service by statutory revenues.

SECURITY:

The bonds are payable from statutory revenues, which are personal income, and, if necessary, sales tax revenues. Neither revenue stream is subject to state or city appropriation. Taxes are imposed pursuant to statutes enacted by the state. The federal subsidies associated with the Build America and Qualified School Construction Bonds are not pledged.

CREDIT SUMMARY:

The 'AAA' rating is based on the very high credit quality of the legal structure and the strength of the statutory revenues, which are personal income tax (PIT) revenues and, if projected debt service coverage from PIT revenues falls below 1.5 times (x), sales tax revenues. Revenues from the PIT flow directly from the state comptroller to the TFA; the city receives residual revenues only after TFA bondholders have been paid. Although statutory revenues dropped sharply in fiscal 2009, growth is now reported for fiscal 2010 and forecast for the current fiscal year. Coverage remains strong, at more than 7x MADS based on fiscal 2010 revenues. A 0.5% increase in the sales tax rate that became effective on Aug. 1, 2009 boosted statutory revenues.

The subordinate additional bonds test (ABT) requires that historical statutory revenues cover at least 3x the full $1.32 billion maximum allowable senior debt service plus projected subordinate debt service. In 2009 the state authorized additional debt issuance by TFA, which had exhausted its prior authorization. Under the expanded authorization, TFA can issue up to a cap of $13.5 billion in future tax secured bonds outstanding and then issue additional future tax bonds as long as the debt fits within the city's debt limit.

The rating reflects the bankruptcy-remote, statutorily defined nature of the issuer, the bond structure involving a first perfected security interest in revenues that are not subject to appropriation, statutory covenants prohibiting action that would impair bondholders, New York State as collection agent, and the existence of two separately levied cash flow streams (the statutory revenues). The state is able to unilaterally modify or repeal tax law as it relates to the PIT or sales tax and could risk default by exercising this right in an extreme city fiscal crisis scenario; however, Fitch believes that the risk of this is negligible.

Statutory revenues were notably weakened in fiscal years 2002 and 2003 due to the economic downturn and the events of Sept. 11, 2001, then grew strongly with robust economic growth in the city. Statutory revenues rose 11% in fiscal 2008, with PIT receipts up 14%. The recession had a dramatic impact on revenues. Fiscal 2009 statutory revenues fell 17%, to $11.4 billion, with a 24% decline in PIT receipts. Fiscal 2009 PIT revenues of $6.7 billion reflected a $597 million state adjustment for prior year overpayments. Fiscal 2010 tax revenue is reported up 5% over fiscal 2009, and revenues for fiscal 2011, which began on July 1, are projected to rise another 6%.

Applicable criteria available at 'www.fitchratings.com':

--'Tax-Supported Rating Criteria' (Dec. 21, 2009);

--'U.S. Local Government Tax-Supported Rating Criteria' (Dec. 21, 2009).

Additional information is available at 'www.fitchratings.com'.

Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492466

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470

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