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Metropolitan Transportation Authority (NY)



Transportation Revenue Variable Rate Bonds Subseries 2012A (Remarketing)

May 31, 2019


Image by Sam Mgrdichian

These Bonds were the first MTA transaction—and only the third overall—to use Clarity as the weekly rate setting platform

On May 31, 2019, SCS served as senior manager/initial remarketing agent for MTA’s $50 million Transportation Revenue Variable Rate, Subseries 2012A-2, Bonds.

The MTA determined to utilize the Clarity platform to remarket certain of its FRNs that had an impending mandatory tender date and convert them to the weekly reset VRDB mode.

After SCS’ initial rate setting, the Bonds are to be remarketed weekly on the Clarity Bidrate Alternative Trading System (“Clarity”). These Bonds represent the first MTA transaction—and only the third overall—to use Clarity as the weekly rate setting platform.

The Bonds

The Bonds bear interest in weekly mode, set on an ongoing basis on each Wednesday on the Clarity platform with a maximum annual rate of 9.00%, payable on the first business day of each month. On each Wednesday (the rate setting date), investors may place and edit bids until 1 pm. All bids are published on Clarity in real time and all investors can see the interest rates and par amounts (but not the investor names) of all other bids. The combination of real-time market transparency, the ability to see all bids in comparison to the market, and the ability to edit bids until the cutoff time creates a highly competitive marketplace. The new interest rate is then published at 1:30 pm on that Wednesday and is effective on that Thursday.

The Bonds are secured by MTA’s pledged transportation revenues from Transit and Commuter System operations, MTA Bus operations, MTA Bridges and Tunnels operating surplus, subsidies from governmental entities, and certain other sources.

The Bonds’ credit and liquidity are supported by an irrevocable direct-pay letter of credit issued by the Bank of Montreal, which is set to expire in June 2022.

The Initial Remarketing

In the week prior to pricing, there was a significant dislocation in the VRDO market, with daily rates in the 2% range and weekly rates in the mid-1% range. These headwinds precluded a number of otherwise active investors from participating on the initial pricing—investors who explicitly stated their desire to participate on the ongoing weekly Clarity reset process once the market stabilized.

Despite the market turbulence, SCS successfully executed the transaction through thorough investor education and extensive premarketing, having engaged with a number of accounts the week prior to pricing in order to generate interest in the product and garner participation.

Prior to and on the day of pricing, SCS and the MTA worked closely with key investor accounts in order to maximize investor demand. As a result, during the order period, 6 investors placed a total of $127.0 million in orders against $50.0 million in par, including 2 investors that did not participate on the prior recent Clarity pricing. Given this strong demand, SCS was able to lower the initial rate by 2 bps.

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