Financing

New York City Related Issuers - Variable Rated Debt

The city and other issuers supporting the city capital program utilize floating rate debt in an effort to diversify their offerings and minimize interest costs. Variable rate demand bonds, which require an accompanying bank facility, comprise the majority of the city’s and its related entities’ variable rate portfolio. The city and TFA also have floating rate bonds which do not require a bank facility, where interest rates are set periodically according to a benchmark index, by auction, or by a remarketing agent. Currently, the city and its related entities, excluding NYW, have approximately $8.1 billion of floating rate exposure.

While floating rate debt can provide savings relative to fixed rate debt, the exposure is of note because certain events can cause costs to increase unexpectedly. Those events would include rising short-term interest rates, reductions in tax rates in the tax code (in the case of tax-exempt debt), and the deterioration of the city’s credit or the credit of a liquidity provider. The city uses conservative assumptions in budgeting interest rates and associated expenses from floating rate instruments.

The table “NYC Floating-Rate Exposure” summarizes the city’s and its related issuers’ floating rate exposure, excluding NYW. Total floating rate exposure is 7.8 percent, which remains below the city’s policy guideline of 20 percent. This is even more manageable after taking into account the 10-year average balance of $8.9 billion of short-term assets in the city’s General Fund, which are an offset to these floating rate liabilities. Net of these floating rate assets, the floating rate exposure of the city, excluding NYW, is entirely mitigated. GO and TFA floating rate exposure represents 9.9 percent and 6.0 percent of GO and TFA FTS debt, respectively.

In addition to floating rate debt instruments, the city has utilized synthetic fixed rate debt (issuance of floating rate debt which is then swapped to a fixed rate). In contrast to variable rate demand bonds and other floating rate instruments, synthetic fixed rate debt is relatively insensitive to changes in interest rates and changes in the city’s credit, though it can provide exposure to the relationship between tax-exempt and taxable floating rates. To calculate the floating rate exposure associated with synthetic fixed rate debt in the foregoing analysis, it is conservatively assumed that there is no difference between tax-exempt bond rates and the taxable rates on which swap receipts are based.

The city has not entered into any new interest rate swaps in recent years. The city is a party to one remaining GO interest rate swap with an outstanding notional amount as of March 31, 2025 of $20.375 million, for which the mark-to-market value was negative $206 thousand. This is the theoretical amount that the city would pay if the swap was terminated under market conditions as of March 31, 2025. This swap matures on August 1, 2026. Additionally, the city is required to make payments under two interest rate swap agreements that relate to conduit indebtedness; as of March 31, 2025, the total notional amount was $125.5 million and the combined mark-to-market value was negative $7 million. These swaps mature on May 15, 2039. The TFA has no outstanding swaps.

The variable rate receipts on outstanding interest rate swap agreements were originally based on the London Interbank Offered Rate (LIBOR), a benchmark index that has been phased out. Additionally, certain floating rate debt instruments included alternative rates based on LIBOR. To address the market’s transition away from LIBOR, these swap and debt instruments were modified to incorporate the Secured Overnight Financing Rate (SOFR) as a replacement index.