New York City Gets Buffett Yield as Water System Boosts Debt Sale 39%

New York City Municipal Water Finance Authority, which has been granted rate increases of 10 percent or more for four consecutive years, boosted its sale of taxable Build America Bonds 39 percent to $554 million with yields on the debt near the highest in a month.

The sale today was the agency’s third of the federally subsidized debt this year, totaling about $1.45 billion, according to data compiled by Bloomberg. The average yield on Build Americas touched 5.94 percent last week, the highest since May 17, according to the Wells Fargo Build America index.

The agency’s steady income stream from essential services helps make its bonds attractive to investors, according to Tom Kozlik, a municipal credit analyst for Philadelphia-based Janney Montgomery Scott LLC, part of the group that handled the negotiated sale.

“They have a traditionally strong revenue source,” Kozlik said. “Investors want to be able to sell these bonds, and the level of liquidity is very strong.”

Bonds due in 2042 from the authority’s $500 million deal on March 9 have had five days in the last month where trading exceeded $1 million, according to Municipal Securities Rulemaking Board Data.

The authority today sold another tranche of debt due in 2042, priced to yield 5.72 percent, or 163 basis points over the 30-year benchmark Treasury. The March notes yielded 6.01 percent on the sale date, 179 basis points above the same U.S. government securities. A basis point is 0.01 percentage point.

“We achieved our lowest yields to date for Build America Bonds and demand for our bonds was strong and broad-based among institutional investors,” said Tom Paolicelli, executive director of the authority.

Water Rates

The New York Water Board, which controls water and sewer prices for the authority, adopted a 12.9 percent increase for 2011, a fourth straight boost of 10 percent or more, according to a June 17 report by Fitch Ratings, which assigned a AA+ grade to the notes, its second-highest. Standard & Poor’s also rates the securities AA+, while Moody’s Investors Service assigned its third-highest grade, Aa2. The notes, backed by water and sewer system revenue, will fund capital improvements, said Fitch.

Underwriters led by Morgan Keegan Inc. marketed the issue.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Brendan A. McGrail in New York at bmcgrail@bloomberg.net.

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