NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to bank bonds corresponding to the following Dormitory Authority of the State of New York (DASNY) variable rate bonds:
--Approximately $125,500,000 court facilities lease revenue bonds (the City of New York Issue), series 2005B.
The Rating Outlook is Stable.
The assignment of the bank bond rating is in connection with the substitution of the irrevocable direct-pay letter of credit (LOC) issued by Bayerische Landesbank with a liquidity facility in the form of a LOC issued by Mizuho Bank, LTD. acting through its New York Branch (Mizuho; 'A-/F1', Stable Outlook). The substitution will occur on Nov. 24.
Based on a review of the terms governing bank bonds specified in the reimbursement agreement, it is Fitch's opinion that the incremental risk associated with bank bonds does not have a material impact on the city's (as obligor) long-term credit rating.
For more information on the obligor's bond rating, see 'Fitch Rates New York City's (NY) $915MM GOs 'AA'; Outlook Stable,' dated July 24, 2015. For more information on the bonds, see 'Fitch to Take Various Actions on Dormitory Auth of NY State 2005B Court Facilities Lease Revs (NYC),' dated Nov. 20. Both reports are available on Fitch's web site at 'www.fitchratings.com.'
The DASNY bonds are payable from lease payments made by New York City (the city), subject to annual appropriation, and further secured by state aid intercept mechanisms, a master lease, and a standard debt service reserve fund.
KEY RATING DRIVERS
HIGHLY EFFECTIVE BUDGET MANAGEMENT: The key credit strength underpinning Fitch's 'AA' rating is the city's tight budget monitoring and control as demonstrated by its ability to achieve consistent balance and manage out-year gaps.
MODEST BUT ADEQUATE CUSHION: While the city does not carry a meaningful fund balance, growing budgetary reserves and expense prepayments provide adequate protection against unforeseen conditions.
SOLID UNDERPINNINGS; CYCLICAL REVENUE: The city has a broad economic base and serves a unique role as a national and international center for commerce, culture, and tourism. The city's diverse revenue structure captures most economic activity but is vulnerable to variability in the financial services industry.
HIGH LONG-TERM LIABILITIES: Fitch anticipates a continued high debt burden given the city's significant capital commitments and expected future tax-supported issuance. Post-employment liabilities are also high. Fitch expects the combined burden on the budget of long-term liabilities will remain elevated but fairly stable.
APPROPRIATION CONSIDERATIONS: There is a one-notch distinction between the city's 'AA' general obligation (GO) rating and the rating on the lease revenue bonds because payment of rental payments equal to debt service for the latter are subject to annual appropriation.
BUDGET BALANCE CRUCIAL: Given the modest level of accumulated reserves, the rating is sensitive to the city's ability to continue to address budget imbalances and demonstrate financial flexibility through sizable prepayments of future years' expenditures. Fitch expects these prepayments to grow while the economy and revenues remain strong.
LONG-TERM LIABILITY CONTAINMENT: Fitch remains concerned about the city's large long-term liability burden but expects the burden on the budget to stay manageable. Notable growth in the budget burden associated with these liabilities would reduce overall financial flexibility and negatively affect the rating.
Date of Relevant Rating Committee: May 28, 2015.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope and IHS Global Insight.
Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria will be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)