Port Authority of New York & New Jersey
Consolidated Bonds 212th, 213th, 214th, 215th & 216th Series
August 7, 2019
Purpose. Proceeds of the bonds were used to refund the Port Authority’s Consolidated 154th, 160th, 156th, and 161st Series Bonds, and were used to pay the costs of capital projects in connection with facilities of the Port Authority. In addition, a portion of the 214th Series (AMT) proceeds were used for a commercial paper take out.
Credit. The Authority’s core mission is regional transportation and it is responsible for serving the nation’s largest metropolitan region. Its 2017 – 26 Capital Plan totals $37bn. It has a diverse revenue base and infrastructure portfolio including airports, port facilities, tunnels, bridges, terminals, PATH and the World Trade Center site
Structuring. As Joint-Senior Manager, SCS was responsible for all structuring efforts related to the transaction. SCS prepared multiple alternatives for each bond type and developed a customized optimization model that allowed the Authority to achieve savings in targeted years, while not causing dis-savings in any year on any of the four refunded bond series. SWS first “grouped” the bonds by series and/or purpose in structuring baskets to develop potential structuring alternatives. The taxable bonds were structured independently according to Authority policy while the tax-exempt non-AMT and tax-exempt private activity refunding bonds were structured in conjunction with each other and the tax-exempt and AMT new money bonds were structured simultaneously. These alternatives were then mixed-and-matched by the Authority to achieve the best possible aggregate solution, while ensuring marketability across all series.
Additionally, during this development:
SWS created a tailored and optimized tax-exempt/AMT new money structure that was the result of pushing all AMT bonds into the most marketable area and keeping tax-exempt non-AMT bonds where they were most attractive to SMA investors—all while still providing overall level debt service.
SWS developed six customized Excel-based linear optimization refunding models that allowed the Authority to achieve highly-targeted savings in key years. These models provided varying degrees of savings in different years, with a focus on current MADS-year and on the Authority’s MADS years in the future.
SWS developed four long and ultra-long dated taxable structures, with alternatives focused on 30, 40, 50, and 100-year final maturities. SWS eventually structured a 50-year term bond that amortized from 2065 to 2069
Market Conditions. The week of August 6th was the biggest supply week of the year to date ($12.6bn) with issuances by NYC TFA ($1.4bn), CommonSpirit Health ($5.1bn) and DFW ($1.2bn). The week began with an escalating trade war with China that caused the DJIA to fall 950 points and the 10 and 30-yr US Treasury yields to drop to 1.73% and 2.29%, respectively, on Monday. MMD underperformed and lagged Treasuries. While trade tensions remained during pricing, volatility subsided and, given 29 straight weeks of inflows in prior weeks, high demand from investors was still expected despite market challenges.
Marketing. SWS assisted the Authority and the financing team with preparing and recording an Investor Presentation that was ultimately viewed by 33 unique investors. Despite the market conditions at the time of pricing, the Joint-Senior Managers extensively pre-marketed the transaction and received strong interest from investors. This included $4.9 billion of total orders on the tax-exempt series (including $446.9 million retail) and $513.7 million taxable orders. Priority orders from 80 different investors were received on the tax-exempt portion and 29 different investors on the taxable portion.
Pricing Results. The transaction received strong interest from investors including $4.9bn of total orders on the tax-exempt series (including $446.9mm retail) and $513.7mm taxable orders. Priority orders from 80 different investors were received on the tax-exempt portion and 29 different investors on the taxable portion. As a result of the syndicate’s strong pre-marketing effort and aggressive pricing strategy, the tax-exempt (both non-AMT and AMT) and taxable bonds were 5.7x and 1.3x oversubscribed, respectively. This oversubscription allowed the underwriters to tighten spreads by as much as 15 bps on the TE Non-AMT bonds and 17 bps on the TE AMT bonds. The 212th – 213th Series Bonds generated net present value savings of over $204.8mm (27% of refunded bonds). Compared to the Authority’s 2018 transactions, spreads to MMD for the non-AMT bonds were as much as 23 bps tighter and up to 19 bps tighter for the AMT bonds.