Riskiest WTC Debt From $1.6 Billion Muni Offer Gains After Sale

The riskiest part of this week’s $1.6 billion tax-exempt bond sale to finance the construction of 3 World Trade Center is rallying, driving yields down more than 1 percentage point.

Developer Larry Silverstein’s Oct. 28 offering, the largest-ever unrated deal in the municipal market, was divided into three classes based on the priority of repayment. The most subordinate securities mature in November 2044 and priced to yield 7.25 percent, data compiled by Bloomberg show. The debt traded today at yields as low as 6.22 percent, and at an average of 6.31 percent.

The $231 million tranche is “like pure equity” in terms of risk, Tom Metzold, co-director of municipal investments in Boston at Eaton Vance Management, which oversees about $24 billion in local debt, said before the sale.

The more secure bonds haven’t rallied as much. The most senior debt, $1.1 billion of securities due in November 2044, priced to yield 5 percent, and traded today at an average of 4.98 percent.

Bonds for 3 World Trade are backed by tenant leases and rents and secured by a mortgage. New York City and state will contribute $210 million and the Port Authority of New York & New Jersey agreed to let Silverstein use $159 million of insurance proceeds from a $4.6 billion payout after the Sept. 11, 2001, terror attacks.

About 20 percent of the building is leased. Advertising firm GroupM is the only tenant in the 2.5 million square-foot tower, which is expected to be finished in 2018. Bond documents cite 118 investor risks, including the possibility the tower won’t be completed, insufficient tenant leases and the potential for terror attacks that could reduce revenue.

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