NYC Boosts Bond Sale 18% as Demand Outstrips Supply

New York City increased its offer of general-obligation bonds by about 18 percent to $1 billion in the first sale since Mayor Bill de Blasio announced a budget and a nine-year labor deal.

Investors placed almost four times as many orders for bonds maturing in 2032 than were available, said Alan Anders, deputy director for finance in the Office of Management and Budget. The refinancing of higher-cost debt will save the most populous U.S. city about $100 million in the fiscal year beginning July 1, Anders said. The city has the third-highest credit grade from the three major rating firms.

De Blasio, a Democrat who took office in January, last month introduced a $73.9 billion spending plan and terms of a labor settlement with the 110,000-member teachers union. The contract includes two years of retroactive pay increases and raises totaling 10 percentage points. Extending the terms of the deal to the city’s 150 other municipal unions would cost about $17.4 billion through 2021, the mayor said.

“Everyone was looking to see whether, after we announced a labor settlement and the executive budget incorporated it, we would get our strong AA ratings reconfirmed, and we did,” Anders said yesterday in a telephone interview.

The labor expenses would be partly offset by cuts of more than $9 billion, including almost $6 billion from unspecified health-care savings. De Blasio’s financial plan projects a $2.6 billion deficit for the fiscal year beginning July 1, 2015, and deficits of about $2 billion and $3 billion in the following years.

Reduced Holdings

The labor contracts’ potential fiscal impact led some investors, including UBS Global Asset Management Americas Inc., to reduce holdings of city debt.

Bonds maturing in 2032 were priced to yield 3.57 percent, or 0.54 percentage point more than top-rated bonds with the same maturity, according to data compiled by Bloomberg. In March, the city sold debt maturing in 2032 at a premium of 0.66 percentage point, according to data compiled by Bloomberg.

The city received $203 million of retail orders and $648 million of “priority orders” from institutional investors, Anders said. Other bonds were sold through sealed bids. Not all of the maturities were over-subscribed, particularly after the deal was enlarged, he said.

Moody’s Investors Service on May 12 said the budget shows how labor costs can challenge the city’s finances even in a strong economy.

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