The Dormitory Authority of the State of New York sold $1.2 billion of revenue bonds last week to good demand, with spreads coming in tighter compared to a DASNY negotiated deal that priced last year.
“Overall the bond sale was a success,” said DASNY spokesperson Jeffrey Gordon. “[Last week’s sale] benefited from a calm market and robust demand for highly rated state bonds.”
As New York State’s capital project development authority, DASNY is responsible for financing and constructing science, health and educational institutions that serve the state’s populace. One of the largest issuers of tax-exempt bonds in the nation, DASNY’s latest sale highlights the strength and demand of New York state paper.
“There is an inherent demand in New York State paper because of the high tax rates within the state and the amount of wealthy people for the retail market there are,” said Howard Cure, director of municipal bond research at Evercore Wealth Management.
“[DASNY] is considered a very strong security in a state that is economically doing fairly well. And it makes sense, because it’s such a well-known credit,” he said. “The amount of sales tax receipt compared to the maximum annual debt service is over eight times. So it’s a very strong credit all the way around … there is a lot of demand for this debt.”
Bloomberg News
The authority sold $1.223 billion of tax-exempt state sales tax revenue bonds in three series in the competitive market on July 10.
The authority sold $408.765 million of Series 2024A, Bidding Group 1, to Morgan Stanley, with 5s of 3/2026 at 3.04% (-5 basis points to Bloomberg’s BVAL Triple-A scale), 5s of 2029 at 2.92% (+1), 5s of 2034 at 2.98% (+15), 5s of 2039 at 3.23% (+25) and 5s of 2041 at 3.43% (+24), callable 9/15/2034.
DASNY also sold $415.885 million of Series 2024A, Bidding Group 2, to J.P. Morgan, with 5s of 3/2042 at 3.52% (+25), 5s of 2044 at 3.63% (+23), 5s of 2049 at 3.90% (+27) and 5s of 2050 at 3.92% (+26), callable 9/15/2034.
Additionally, the authority sold $397.99 million of Series 2024A, Bidding Group 3, to BofA Securities, with 5s of 3/2051 at 4.00% (+32), 5s of 2054 at 4.06% (+33) and 5s of 2056 at 4.10% (+37), callable 9/15/2034.
The issuer came to market in Aug. 2, 2023, with a negotiated deal of $1.744 billion of tax-exempt and taxable state sales tax revenue bonds. In general, negotiated spreads are wider than competitive spreads.
In that deal in the negotiated market, J.P. Morgan priced for DASNY $1.4 billion of tax-exempt Series 2023A-1 bonds, with 5s of 3/2027 at 2.87% (+6), 2028 at 2.91% (+18), 5s of 2033 at 3.09% (+47), 5s of 2038 at 3.63% (+49), 4s of 2043 at 4.24%, 4s of 2049 at 4.35% (+78) and 5s of 2053 at 4.16% (+54).
DASNY traditionally issues state sales tax revenue bonds and state personal income tax revenue bonds four to five times per year to finance spending on projects included in the state’s capital plan, Gordon said. DASNY seeks to fund transportation projects through New York State’s Department of Transportation and New York Metropolitan Transportation Authority capital plans.
Proceeds from the most recent sale will reimburse the state for expenditures that have already occurred for the DOT’s capital plan, local highway and bridge program and the MTA’s 2015-19 and 2020-2024 capital plans.
The issuance is a marker of New York’s wider financial course. According to the final issuance report, the state expects state sales tax revenue bonds and personal income tax revenue bonds to be the “primary financing vehicles” for financing state-supported programs for the rest of the current financial period.
The DASNY sale was rated Aa1 by Moody’s Ratings and AAA by Kroll Bond Rating Agency.
According to KBRA senior director and lead analyst Linda Vanderperre, DASNY’s rating is buoyed by the strength of the state’s sales tax.
“Our AAA rating is based on the importance of the sales tax to New York state’s finances. And then we also put a lot of weight in the structural framework of the sales tax revenue bond program,” Vanderperre said.
“Even though there is an annual appropriation by the state involved, as there is with any of the state’s outstanding debt, we see the structure as effectively eliminating appropriation risk,” she said. “And that’s because it’s tying the availability of a very critical portion of state operating revenue to appropriation of these financing agreement payments.”
Outside of the initial hit at the beginning of COVID shutdowns, sales tax has proven to be resilient, according to Cure. Following both COVID and 2008’s recession, revenue quickly recovered. Following a 10.8% dip in 2020, sales tax rallied by 24.2% in 2022, he said.
While unrelated, the issuance comes amidst uncertainty over the fate of the
“This issuance was definitely in the works before congestion pricing happened. However, it is a possible concern that other MTA projects may now pose a future burden on the sales tax and personal income tax revenue sources,” Cure said.
DASNY has an outstanding bond portfolio of approximately $55.8 billion.
The latest issuance is a marker of New York’s wider financial course. According to the final issuance report, the state expects state sales tax revenue bonds and personal income tax revenue bonds to be the “primary financing vehicles” for financing state-supported programs for the rest of the current financial period.