Fitch Ratings has assigned an 'AAA' rating to the following New York City Transitional Finance Authority (TFA) future tax secured subordinate bonds:
--$483,000,000 fiscal 2011 series E;
--$17,000,000 fiscal 2011 series F.
The bonds are scheduled to be sold through negotiation the week of April 4, 2011. Proceeds will be used to redeem, at or prior to maturity, certain outstanding future tax secured bonds for debt service savings.
In addition, Fitch has affirmed the 'AAA' ratings on the following outstanding TFA future tax secured bonds:
--$5.9 billion senior bonds;
--$1.5 billion recovery subordinate bonds;
--$11.8 billion other subordinate bonds.
Although senior bonds have a first claim on statutory revenues, Fitch does not make a rating distinction between the liens due to the high coverage levels.
The Rating Outlook is Stable.
RATING RATIONALE:
--The legal structure is very strong, specifically the bankruptcy-remote, statutorily defined nature of the issuer, the bond structure involving a first perfected security interest in revenues that are not subject to appropriation, and statutory covenants prohibiting action that would impair bondholders.
--Statutory revenues consist of two separately levied cash flow streams with New York State as the collection agent.
--Statutory revenues provide wide coverage of maximum annual debt service (MADS).
--Statutory revenues are derived from a broad economic base with high income levels, benefiting from the city's unique role as a national and international center for commerce and culture.
KEY RATING DRIVER:
Continued strong coverage of debt service by statutory revenues.
SECURITY:
The bonds are payable from statutory revenues, which are personal income, and, if necessary, sales tax revenues. Neither revenue stream is subject to state or city appropriation. Taxes are imposed pursuant to statutes enacted by the state.
CREDIT SUMMARY:
The 'AAA' rating is based on the very high credit quality of the legal structure and the strength of the statutory revenues, which are personal income tax (PIT) revenues and, if projected debt service coverage from PIT revenues falls below 1.5 times (x), sales tax revenues. PIT and sales tax revenues are imposed by the city and collected by the state. Revenues from the PIT and sales tax, if required, flow directly from the state comptroller to the TFA trustee, and are not subject to state or city appropriation. The city receives residual revenues only after advance quarterly funding of debt service. Statutory revenues improved by 3% in fiscal 2010 following a sharp decline in fiscal 2009 driven by the economic recession, aided by a 0.5% increase in the sales tax rate effective Aug. 1, 2009. More robust growth of 10% is forecast for the current fiscal year due to employment gains and strong performance in the financial markets and tourism sector, and improved consumer confidence resulting in higher taxable consumption. Coverage remains strong, at about 6.1x MADS based on fiscal 2010 revenues.
The subordinate additional bonds test (ABT) requires that historical statutory revenues cover at least 3x the full $1.32 billion maximum allowable senior debt service plus projected subordinate debt service. In 2009 the state authorized additional debt issuance by TFA, which had exhausted its prior authorization. Under the expanded authorization, TFA can issue up to a cap of $13.5 billion in future tax secured bonds outstanding and then issue additional future tax bonds as long as the debt fits within the city's debt limit. The TFA projects the issuance of approximately $9.6 billion in additional future tax secured bonds for general city capital purposes during fiscal years 2012-2015, which is not inconsistent with prior leveraging expectations. Additional issuance plans are not expected to have a materially adverse impact on debt service coverage levels.
The rating reflects the bankruptcy-remote, statutorily defined nature of the issuer, the bond structure involving a first perfected security interest in revenues that are not subject to appropriation, statutory covenants prohibiting action that would impair bondholders, New York State as collection agent, and the existence of two separately levied cash flow streams (the statutory revenues). The state is able to unilaterally modify or repeal tax law as it relates to the PIT or sales tax and could risk default by exercising this right in an extreme city fiscal crisis scenario; however, Fitch believes that the risk of this is negligible.
The city possesses inherent strength in the scope of its unique economy and its singular identity as a major tourist destination (the city attracted a record 48.7 million visitors in 2010) and an international center for numerous industries. The city's personal income per capita is 130% of the national average. Economic dependence on Wall Street remains, with financial activities accounting for about 12% of jobs and 30% of earnings. After an employment drop of 5% between 2000 and 2003, much more severe than the national decline of 1.4%, the city enjoyed job growth through November 2008. Recession-related job declines accelerated thereafter, although declines have been well under comparable national averages and have since abated. The city's employment was down 2.8% in 2009, compared to the nation's 4.3% loss for the year. February 2011 employment was up approximately 1.0% year-over-year, which is essentially equal to the rate of growth nationally. The city's unemployment rate, which rose to 10.4% in January 2010, was 9.4% by January 2011, below the 9.5% national average for the month.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. State Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564546
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