NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA' rating to bank bonds associated with the following New York City adjustable rate general obligation (GO) bonds, fiscal 2015 series F:
--$100 million subseries F-4;
--$100 million subseries F-5;
--$100 million subseries F-6;
--$ 50 million subseries F-7
The Rating Outlook is Stable.
The rating is being assigned in connection with the issuance of irrevocable letters of credit pursuant to reimbursement agreements with Bank of Tokyo-Mitsubishi UFJ, Ltd. (subseries F-4) and Royal Bank of Canada (subseries F-7), and the execution of standby bond purchase agreements (SBPAs) with Barclays Bank PLC (subseries F-5) and JPMorgan Chase Bank, National Association (subseries F-6). The letters of credit and SBPAs are expected to become effective June 18, 2015.
Based on a review of the terms governing bank bonds specified in the agreement it is Fitch's opinion that the incremental risk associated with bank bonds does not have a material impact on the long-term credit rating.
The GO bonds are secured by a pledge of the city's full faith and credit and the levy by the city of ad valorem taxes (without limit as to rate or amount) on all real property within the city subject to taxation. The city is not subject to New York State's property tax cap.
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.
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.
For more information see Fitch's press release dated May 28, 2015, available on Fitch's web site at 'www.fitchratings.com.'
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 informed by information from Creditscope and IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)