Siebert Williams Shank was appointed by the New York City Water Finance Authority to serve as the lead manager for this issuance which priced on Dec. 4, 2019.
Purpose: Proceeds of the issue were used for new money and refunding purposes, including a current refunding of Refundable Principal Installments (“RPI”) and VRDBs and a tax-exempt advance refunding of a portion of NYW’s outstanding Build America Bonds (“BABs”).
Structuring & Marketing Analysis: Using a portfolio approach, SWS provided an extensive structuring analysis, not only to comply with the Authority’s objectives for the proposed issue, but also to help NYW develop an optimal future current refunding strategy for the $1.5 billion candidates that are callable in CY2020.
Specifically, we targeted a pool of nearly $1 billion of BABs and provided extensive analytics on:
- the relative costs/benefit of tax-exempt advance refunding vs. a forward refunding vs. a future current refunding in March 2020;
- the trade-offs between lost federal interest subsidy and refunding savings;
- the breakeven spreads required for a future current refunding;
- the use of sub-5% coupons vs. 5%;
- the financing impact of the refunding bond call dates: 12/15/2029 vs. 6/15/2030;
- the use of SLGs vs. OMS escrow
Our comprehensive evaluation of BABs ultimately led to an up-sizing of the issue by $80 mm.
SWS also solicited bids from two advertising agencies to implement NYW’s inaugural online advertising campaign; however, NYW ultimately chose not to pursue the campaign due to the high cost associated with the Thanksgiving holiday weekend.
Market Conditions: In the weeks leading up to the pricing, despite a consistent inflow into mutual funds, available redemption cash for investment, and a flattening of the yield curve, the market continued to be pressured by headline-driven high volatility and above-normal supplies of municipal offerings.
Following the Thanksgiving holiday weekend, price views from select managers we believed did not fully reflect record-setting municipal offerings for the week of pricing, peaking at $17.5 billion.
However, NYW benefited from being the only NY issuer with a sizable offering during the week (except for NYSHFA and NYCHDC, both of which were targeting a different buyer base).
Retail Marketing Strategy: Serial maturities through 2042 were utilized to optimize yield curve benefits and assess investor interest in 2041 and 2042 for a potential upsizing (for a BABs refunding).
A combination of 3%, 4%, and 5% coupons were used to diversify offerings for a wider group of investors and to break up large sized maturities in years 2022, 2023, 2025, 2029 and 2049. Bonds maturing in 2037 – 2040 were not offered during the retail order period in order to channel orders to targeted maturities.
Investors placed a total of $432.9 million in orders during the ROP, $132.7 million of which were usable. The bonds maturing between 2023 and 2028, and in 2034 and 2035, were 2.37x – 3.998x oversubscribed.
Final Pricing Results: NYW received $941.4 million in priority orders, which combined with retail orders brought the overall book to 1.37 billion (2.14x oversubscribed) from 38 different investors. Strong institutional demand throughout the curve created oversubscription levels of approximately 1.31x – 3.60x and allowed SWS to tighten spreads by 1 – 3 basis points. The refunding of fixed rate bonds generated $24.7 mm of PV savings, or 17.6% of refunded par.