NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to bank bonds associated with the following New York City Transitional Finance Authority (TFA) future tax-secured (FTS) bonds:
--Approximately $100 million fiscal 2014 series D subseries D-3 tax-exempt subordinate bonds (adjustable rate);
--Approximately $100 million fiscal 2014 series D subseries D-4 tax-exempt subordinate bonds (adjustable rate).
The Rating Outlook is Stable.
The rating is being assigned in conjunction with the issuance of the above-referenced bonds, which are expected to close on April 29th. The bonds will have liquidity support from a standby bond purchase agreement provided by Mizuho Bank, Ltd., acting through its New York Branch. For more information on the bonds and the liquidity support, see 'Fitch Rates $200MM New York City TFA FTS Sub Bds Fiscal 2014 Ser D Subser D-3 and D-4 'AAA/F1'' dated April 16, 2014.
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.
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 and could risk default by exercising this right in an extreme city fiscal crisis scenario. 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 and are not subject to state or city appropriation. The city receives residual revenues only after advance quarterly funding of debt service.
ROBUST COVERAGE: 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 and protections against overleveraging. Even with sizable debt issuance plans over the next four years, pro forma MADS coverage is expected to remain strong.
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.
For more information on the TFA's long-term credit rating, see 'Fitch Rates NYC Transitional Finance Auth $760MM Future Tax Secured Bonds 'AAA'; Outlook Stable' dated April 3, 2014.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria