New York City Municipal Water Finance Authority
Water and Sewer System Second General Resolution Revenue Bonds Fiscal 2018 Series EE
April 4, 2018
NYW achieves $105.6 million in net PV savings
Siebert Cisneros Shank successfully priced this transaction as senior manager for New York Water on April 4, 2018. The refunding portion of the transaction achieved $105.6 million in net PV savings (20.1% of refunded par) for NYW.
In pre-transaction planning, the SCS evaluated $948 million in current refunding candidates callable on or after June 15, 2018 and assisted NYW in splitting candidates into two pools to achieve optimal pricing and execution for both.
We maximized investor participation in both transactions by minimizing overlapping maturities and targeted maturities 2029 and beyond for the first issue to take advantage of the current market. We simultaneously developed optimized cash defeasance strategies for Authority’s cash on hand.
Pricing Structure Analysis, Strategy and Execution
Our team compared relative benefits of short-call and couponing options based on Option Adjusted Yields (OAY). NYW stated a strong preference for a 7.5-year call to complement its existing debt portfolio. On an OAY basis, the bonds with a 7.5-year call and 5% coupon were comparable to those with a conventional 10-year par call/5% structure in every maturity offered. California’s recent offering with only 8-year and 5-year call options was also taken into consideration.
SCS put forth an aggressive retail scale for a 7.5-year call structure despite a slightly negative market tone. Select maturities totaling $328 million were offered at 2 bps below market consensus scale. We received $86 million in usable retail orders despite that fact that offered bonds maturing between 2029 and 2040 do not generally appeal to retail investors. Investor feedback indicated greater interest in a 10-year par call structure. A decisive and strong marketing effort enabled SCS to maintain the 7.5-year call structure for all but one maturity during the institutional order period.
SCS added a 5% maturity with a 2027 call on the largest maturity in 2040. Yields were increased by 2 to 4 bps along the yield curve to track adjustments in MMD as well as to incentivize participation from institutional accounts. Final spreads remained at or below the syndicate price views.
A wide range of accounts placed over $570.4 million of priority orders, which combined with retail subscription, led to an overall subscription level of 1.4x, excluding member stock orders.
The transaction was increased by $34.5 million to absorb over subscription in the 2040 maturity with a 10-year par call. Additionally the refunding issue generated $105.6 million in net PV savings, or 20.1% of refunded par.