The New York City Transitional Finance Authority Future Tax Secured Bonds, Fiscal 2025 Series F and G transaction represents the largest bookrunning senior managed mandate in SWS history.

Proceeds of the transaction were used to refund tax-exempt currently refundable bonds, Build America Bonds (using an extraordinary optional redemption feature), tax-exempt make-whole call bonds, and taxable bonds escrowed to maturity

Structuring:

As part of Siebert’s ongoing coverage of the City, in late 2024 we developed a potential multi-transaction configuration of refunding and new money financings for the City’s General Obligation, TFA Future Secured and TFA Building Aid Revenue credits. Over $4 billion in potential refunding candidates (including BABs with ERP provisions as a means of avoiding further negative impacts from sequestration) were identified as potential refunding candidates in the City’s refinancing portfolio depending on market conditions. SWS also identified developing market conditions that had the potential to make the refunding of short-term tax-exempt bonds with make-whole call features a more efficient tool to structure upfront Plan Year savings relative to taxable structuring bond candidates. SWS was also aware of the City’s congested future financing calendar given its growing new money issuance needs, sizable refunding opportunities and timing limitations due to disclosure requirements. 

SWS presented the City with a series of detailed multi-transaction financing plans that addressed these financing challenges while also allowing the City to potentially generate over $300 million in Plan Year Savings before the end of its fiscal year in June 2025. In January 2025, the City awarded SWS the mandate to execute the first of its multiple planned refinancings.

Over the course of the financing process, municipal market interest rates increased substantially, leaving the viability of refunding certain BABs highly market dependent, especially the 2010G BABs. Including the 2010G BABs candidates would have a material impact on the transaction structure offered to the market. As such, SWS needed to balance a pricing approach that allowed the City to determine a final structure as late in the process as possible while still clearly signaling a likely structure to investors. In order to maintain flexibility for its retail order period, refunding amortization was structured so that the City’s retail investor allotment policies could be achieved regardless of whether the 2010G BABs were included while still meeting New York State Local Finance Law (“LFL”) requirements when entering the Institutional Order Period.

Structuring flexibility was paramount during the pricing process given the two potential sizes of the transaction ($1.68 vs. $1.95 billion) which translated to a sensitivity of $1.3 million per basis point in a market that was moving 7-8 basis points per day. SWS was able to limit all material par size adjustments into the first four maturities of the transaction and still meet LFL constraints; these years coincided with both the taxable amortization and the Plan Years, where targeted savings were desired. Once the inclusion of the 2010G BABs was confirmed on the morning of institutional pricing, the selection of taxable structuring bonds and corresponding escrow requirements for open market securities bids was finalized.

To account for all potential pricing variables, including repricing adjustments and the unknown nature of the taxable escrow OMS bids, an additional pool of tax-exempt bonds with make-whole call features were identified as additional structuring bond candidates in order to both meet LFL constraints while still generating uniform Plan Year savings. This additional pool allowed SWS to utilize “mini-solves” to quickly adjust to the changing yields and escrow costs with minimal changes to the overall transaction structure.

Tuesday February 11: Retail Order Period and Indications of Interest

On the morning of Tuesday, February 11, US Treasuries and the BVAL AAA municipal curve opened a basis point higher in yield while the first MMD read at 10:15am indicated likely cuts up and down the curve. Despite an initial slow start to the Retail Order Period, the tax-exempt offering was ultimately well-received and generated $653.0 million in retail orders (0.44x subscribed for) at the end of the Retail Order Period.

Similar to the tax-exempt offering, TFA offered $194.2 million in taxable par for Indications of Interest and generated $91.2 million of orders at the end of the IOI period.

Wednesday February 12: Initial Pricing Strategy

On the morning of Wednesday, February 12, US Treasuries were initially trading higher by a basis point as market participants awaited the 8:30am release of January CPI. The January CPI release at 8:30am was higher than anticipated, setting off various market reactions, particularly because this was the first CPI release of the year; Treasury interest rates rose by 10-11 bps, and MMD cuts were expected for the day.

Despite these headwinds in the market, the City decided at this point to move forward with the larger upsized transaction given the amount of refunding savings that would be generated. SWS had already developed a pricing strategy to accommodate the large maturity sizes, and we did not believe that adding additional par would require any incremental price adjustments

At this juncture, SWS recommended a number of key strategy adjustments for both the tax-exempt and taxable bonds to ensure a strong overall institutional pricing result in light of the market conditions. First, SWS recommended an additional truncated IOI Period for the taxable bonds inclusive of moderate spread adjustments to continue building upon the prior day’s taxable order book.

Second, upon receiving the first MMD read (which indicated significant cuts throughout the curve), SWS recommended increasing tax-exempt spread levels for the Institutional Order Period (incorporating the broader cuts to MMD indicated in the first read) in order to generate significant demand from investors and best position the transaction to have leverage to significantly lower spreads at repricing.

Wednesday February 12: Pricing Results

By the end of the entire process, SWS’ pricing and structuring leadership led to an overall strong result for TFA. For the taxable launch SWS tightened the 2027 maturity by 2 bps and held spreads steady for the 2025 and 2026 maturities. For the tax-exempt final award SWS had generated enough institutional demand to be able to lower spreads for all maturities ranging from 1 to 6 basis points at Repricing.

Post Pricing Results and Secondary Market Trading:

Following Repricing and Launch, the transaction concluded with a total of $6.3 billion in combined retail and institutional orders. Overall, the financing was 3.23x oversubscribed inclusive of both the tax-exempt and taxable Bonds. When taking into account the large end of day MMD cuts on February 12, the final pricing levels for all tax-exempt maturities were lower than the original Retail Order Period spreads by 2 to 8 basis points across the curve.

In the week following pricing, the 2025 F & G tax-exempt bonds traded at spreads that were anywhere from flat to 3 bps tighter than the new issue spreads. This close alignment between the new issue spreads and secondary market trading reflects strong initial “on-market” pricing levels.