The New York City Municipal Water Finance Authority
The New York City Municipal Water Finance Authority (NYW) was created in 1985 to finance capital improvements to the City’s water and sewer system. Since its first bond sale in November 1985, the Authority has sold $68.9 billion in bonds. These bond issuances included a combination of general (first) resolution, second general resolution and subordinated special resolution crossover refunding water and sewer system revenue bonds.
Of the aggregate bond par amount sold, $31.1 billion is outstanding, $26.9 billion, including $665.4 million of special resolution crossover bonds, was refinanced, $5.0 billion was defeased with Authority funds prior to maturity, and $5.9 billion was retired with revenues as it matured. In addition to this longterm debt, NYW uses bond anticipation notes (BANs) issued to the New York State Environmental Facilities Corporation (EFC) and a commercial paper program as a source of flexible shortterm financing. As of April 2019, $27.6 million of BAN draws are outstanding. The Authority is authorized to draw up to $600 million of commercial paper notes, including up to $400 million of the Extendible Municipal Commercial Paper. Currently, the Authority has no commercial paper outstanding, and does not expect to issue commercial paper for the remainder of the current fiscal year.
NYW’s outstanding debt also includes floating rate bonds, which have been a reliable source of cost effective financing. NYW has $5.1 billion of floating rate bonds or 16.5 percent of its outstanding debt, including $401 million, which was swapped to a fixed rate. NYW’s floating rate exposure primarily consists of tax-exempt floating rate debt supported by liquidity facilities. NYW’s exposure also includes $500 million of privately placed tax-exempt index rate bonds, which pay interest based on a specified index. Index rate bonds do not require liquidity facilities, however, they provide for an increased rate of interest commencing on an identified step up date if the bonds are not converted or refunded. Through the step up date, the bonds have an all-in cost similar to floating rate bonds supported by liquidity facilities.
NYW is a party to two interest rate exchange agreements (swaps) with a total notional amount of $401 million. Under these agreements, the Authority pays a fixed interest rate of 3.439% in exchange for a floating rate based on 67% of onemonth LIBOR. As of March 29, 2019, the mark-to-market value of the swaps was negative $96.4 million. This is the theoretical amount, which NYW would pay if both swaps were terminated as of March 29, 2019.
NYW participates in the State Revolving Fund (SRF) program administered by the EFC. The SRF provides a source of long-term below-market interest rate borrowing, subsidized by federal capitalization grants, state matching funds, and other funds held by EFC.
Summarized in the following table are the issuances that have closed to date in fiscal year 2019. The proceeds of the bonds were applied to pay the cost of improvements to the system or paid principal and interest on certain of the Authority’s outstanding debt and paid the costs of issuance.
|Series||(N)ew Money (R)efunding||Issue Date||Par Amount||True Interest Cost (TIC)||Longest Maturity|
|2019 Series 1(1)||R||18/2/2018||$319,715,000||1.44%(2)||2037|
|2019 Series 2 and 3(1)||N||11/29/2018||$485,144,000||2.20% (2)||2048|
(1) Bonds issued to EFC
(2) Reflects the Effective Interest Cost, which includes the benefit from the EFC subsidy and does not account for cost of annual fees for administration.
NYW expects to issue $75 million of additional new money bonds or notes over the remainder of fiscal year 2019. During the period from 2020 to 2023, NYW expects to sell an average of approximately $1.9 billion of new money bonds per year. Of this amount, NYW plans to issue $300 million bonds annually to EFC, taking advantage of the interest rate subsidy available for qualifying projects, and minimizing the overall costs of its financing program. NYW expects to issue approximately 90 percent of its new debt per year as fixed rate debt with the remainder issued as floating rate debt, subject to market conditions.