SCS served the New York City Municipal Water Finance Authority as senior manager for its $500.0 million tax-exempt new money and refunding Second General Resolution Revenue Bonds which priced on April 9, 2019.

Purpose

Proceeds of the Fiscal 2019 Subseries FF-1 bonds were used to pay the costs of improvements to the System; proceeds of the Fiscal 2019 Subseries FF-2 bonds were used to currently refund NYW’s outstanding debt obligations

Structuring

Our firm provided an extensive structuring analysis prior to pricing in order to help the Authority divide its pool of $1.5 billion of candidates with a June 15, 2019 call date into multiple transactions. SCS sought to maximize the sale-ability of each of the three potential transactions while also splitting up the large pool of candidates with a 2040 maturity ($685.2 million). We also evaluated the optimal timing of currently refunding $100.9 million of BABs in order to maximize savings and minimize the loss of the federal subsidy.
In evaluating the BABs, SCS considered a number of scenarios, including different subsidy rate assumptions, various assumptions on the total subsidy forgone based on transaction timing, and interest rate sensitivity to different transaction dates.

The overall transaction was capped at $500 million, so SCS, in conjunction with NYW, locked in the refunded bond pool the week prior to pricing, and reduced the size of the 2049 new money bonds to offset increase in refunding bond size due to the use of lower premium 4% coupon bonds.

Market Conditions

The municipal market experienced higher interest rates early in the week prior to pricing, but stabilized by the end of the week. The transaction priced in a week with moderate bond offerings totaling approximately $6.7 billion, including a $2.1 billion California GO financing.

Retail Marketing Strategy

To maximize the retail order flow while simultaneously positioning the transaction for strong reception during the institutional order period, SCS offered approximately 50% of each maturity (excepting 6/15/2040) and utilized 3-handle, 4% and 5% coupons in different spots to attract a broad range of investor interests. Additionally, we recommended and maintained an aggressive scale throughout the retail order period that was either at, or 1 to 2 bps lower in spread than the consensus scale in every maturity.

Retail investors place a total of $150.6 million in orders during the retail order period. The 5% coupon bonds maturing in 2033 and 2034 were oversubscribed by approximately 2.6x during the retail order period. Throughout the retail order period, we received strong feedback from institutional investors, including a strong desire for 4% coupon bonds.

Final Pricing Results

NYW received $1.2 billion of institutional priority orders, creating a total order book of just over $1.3 billion by the end of the institutional order period. Strong institutional demand throughout the curve created oversubscription levels of approximately 1.33x to 3.47x times, allowing SCS to tighten spreads from 1 to 3 basis points. Overall, SCS saw participation from a total of 23 professional retail SMA managers and 49 institutional investors (17 accounts placed both retail and net designated orders).

The refunding issue generated $89.9 million in net PV savings, or 20.3% of refunded par.