New York City Offers Build America Bonds as 2010 Sales Pace $100 Billion

New York City will sell $470 million of Build America Bonds next week with the amount of the federally subsidized securities issued on pace to total $165 billion by year-end, when the program is set to expire.

The city’s Transitional Finance Authority plans to sell the taxable debt during two days beginning Aug. 2. It will also offer $155 million of tax-exempts and $125 million of federally subsidized taxable school bonds, said the senior underwriter, Citigroup Inc. Investor demand at a $963 million sale by the third-largest U.S. municipal borrower on July 27 helped cut the city’s interest cost by 11 percent.

Build America Bonds became the fastest-growing part of the $2.8 trillion municipal bond market after they were created last year in President Barack Obama’s economic-stimulus package. More than $124 billion of the securities have been sold so far, according to data compiled by Bloomberg. The total will reach $165 billion by year-end, said independent researcher CreditSights Inc., as borrowers come to market before the program is scheduled to cease.

“The continued volume of issuance augurs well for the sector’s ongoing growth,” Louise Portle and Isaac Codrey wrote in a report released yesterday. The analysts didn’t return e- mails seeking additional comment.

The federal government pays 35 percent of the interest cost of Build Americas, saving states and cities money on public works projects like bridges and roads. The subsidy helps issuers offer higher yields on the taxables than on tax-exempt debt, making them attractive to international investors and others who aren’t seeking tax shelters.

Yield Difference

The average Build America Bond yields 6.03 percent, according to a Wells Fargo index. That compares with 4.4 percent for a top-rated tax-exempt bond maturing in 30 years, according to Municipal Market Advisors Inc. indexes. The yield difference between the Build America yield index and the yield on 30-year Treasuries is 1.95 percentage points, down from 2.07 points on July 14.

The U.S. House of Representatives postponed a vote to extend the Build America program for two years beyond its Dec. 31 expiration yesterday. It would be the third extension sought by the House after the previous two were killed in the Senate.

New York’s $750 million sale is by the Transitional Finance Authority, which helps the most populous U.S. city raise funds for capital projects. An additional $100 million of tax-exempt indexed floating-rated bonds are expected to be sold to Wells Fargo & Co., the authority said.

The bonds offered are backed by a portion of local personal income and sales taxes and are rated Aa1 by Moody’s Investors Service, its second-highest grade.

Politically Insulated

“This is a dedicated revenue bond,” said Howard Cure, director of municipal research at Evercore Wealth Management LLC in New York, which oversees more than $1.1 billion of fixed- income investments. “The political elements that the city and state are grappling with are removed.”

The authority sold $342 million of Build America Bonds maturing in 2040 in May. The longest maturity paid a coupon of 5.467 percent and priced to yield par, according to Bloomberg data. The yield on 30-year U.S. Treasuries on May 18, when the city priced the bonds, was 4.23 percent.

Following are descriptions of pending sales of municipal debt in the U.S.:

REGIONAL TRANSPORTATION DISTRICT, which manages mass- transit operations in and around Denver, plans to issue $404 million in tax-exempt debt as early as next week. The bonds, rated Baa3 by Moody’s, the lowest investment grade, will be used for capital improvements including two rail lines. Barclays Capital and Bank of America Merrill Lynch will market the securities. (Added July 30)

MINNESOTA, which is delaying tax refunds for a second year to conserve cash and balance its budget, plans to sell through competitive bidding $865 million in general-obligation taxable and tax-exempt bonds as soon as next week. The state is raising $635 million for various purposes and $225 million for trunk highways, both of which are tax-exempt, and $5 million of taxable debt. The bonds are top-rated by Fitch and carry Moody’s second-highest grade at Aa1. (Added July 29)

MIAMI-DADE COUNTY EXPRESSWAY AUTHORITY, which operates 32 miles of highways in Florida’s biggest county, will sell $350 million in tax-exempt debt as soon as next week for capital projects and to add to debt-service reserves. The bonds, backed by toll revenue, are rated A3 by Moody’s and A- by Fitch, the fourth-lowest investment grades, and A by S&P, one level higher. Underwriters led by Citigroup will market the securities. (Added July 26)

To contact the reporters on this story: Michael McDonald in Boston at Mmcdonald10@bloomberg.net; Esmé E. Deprez in New York at edeprez@bloomberg.net.

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