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New York (City of) NY -- Moody's assigns Aa2/VMIG 1 to NYC GO Fiscal 2023 Series A, Subseries A-3 & A-4; outlook stable

·18 min read

Rating Action: Moody's assigns Aa2/VMIG 1 to NYC GO Fiscal 2023 Series A, Subseries A-3 & A-4; outlook stableGlobal Credit Research - 02 Sep 2022New York, September 02, 2022 -- Moody's Investors Service has assigned Aa2/VMIG 1 ratings to the City of New York's $200 million General Obligation Bonds, Fiscal 2023 Series A, Subseries A-3 (Adjustable Rate Bonds) and $100 million General Obligation Bonds, Fiscal 2023 Series A, Subseries A-4 (Adjustable Rate Bonds). We maintain Aa2 ratings on approximately $39 billion of outstanding city general obligation debt. The bonds are schedule to price the week of September 5. The outlook is stable.RATINGS RATIONALEThe long-term ratings reflect the city's competitive advantages which include a young and highly skilled labor pool, access to higher education and medical centers and strong domestic and international transportation links. The rating also reflects the city's strong institutional budgetary and financial management and the breadth and diversity of its revenue base. The city's financing responsibilities are broader than most local governments, since it is a city, five counties and the nation's largest school district, and its debt burden is above-average due to this operational scope. Despite those responsibilities, the city's fixed costs for debt service, pensions and retiree health care are below the median for the largest local governments and in the bottom five among the nation's largest cities.The short-term ratings are derived from (i) the credit quality of Bank of Montreal for Subseries A-3 and TD Bank, N.A. for Subseries A-4 as the liquidity support provider for the applicable subseries under separate Standby Bond Purchase Agreements (SBPAs); (ii) the long-term rating of the bonds and (iii) our assessment of the likelihood of an early termination or suspension of the SBPAs without a final mandatory tender. Events that would cause termination or suspension of the SBPAs without a mandatory purchase of the bonds are directly related to the credit quality of New York City. Accordingly, the likelihood of any such event occurring is reflected in the long-term rating, Aa2, assigned to the bonds. Our current short-term Counterparty Risk (CR) Assessment (CR Assessment) of each Bank is P-1(cr).RATING OUTLOOKThe stable outlook reflects improvement in the city's overall financial position, including the substantial budget flexibility provided by strong tax revenue collections, growing budget reserves and federal pandemic aid. It also reflects low risk that the State of New York (Aa1 stable) will cut aid to the city during the next few years although the state is pushing some costs down to the city. Job growth continues but employment is still below the pre-pandemic peak and trails the nation. In addition, the longer-term credit impact of hybrid work remains uncertain and workplace occupancy rates for the city are slightly below the average of the largest cities. Future year budget gaps persist and are manageable but will need to be balanced amid forecasted slow growth in property tax revenue, the impact of inflation, especially on public employee wages as contracts are renegotiated, and the need to keep pace with large pension and retiree healthcare liabilities.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Long-term rating: Continued recovery of city economy to near pre-pandemic levels, combined with structurally balanced budgets- Long-term rating: Stronger reserves, at levels similar to higher-rated peers- Long-term rating: Reduction of debt burden or further reduction in fixed costs- Short-term rating: not applicableFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Long-term rating: divergence from well-established fiscal practices and strong budgetary management- Long-term rating: emergence of significant liquidity strain, especially that results in the need for large cash-flow borrowing- Long-term rating: economic events such as sustained declines in equity prices, or trends that create significant structural budget imbalances - Short-term rating: Moody's downgrades the short-term CR Assessment of the Bank(s) providing liquidity support. - Short-term rating: A multi-notch downgrade of the long-term rating of the bonds.LEGAL SECURITYNew York City's general obligation bonds are full faith and credit obligations of the city, secured by a real property tax levied without limitation as to rate or amount. All of the city's property tax is deposited into the general debt service fund, which is administered and maintained by the state comptroller.Liquidity support for tendersEach of the Bank's obligations under their respective SBPA may be automatically terminated or suspended if:(i) the City fails to pay principal and/or interest on the bonds, or on any parity debt; (ii) the City enters bankruptcy or otherwise becomes insolvent; (iii) a final, non-appealable judgment is issued by a court of competent jurisdiction declaring that any provision of the SBPA, the bonds or the bond certificate relating to the payment of principal and/or interest on the bonds is not valid and binding on the City or the City denies it has any or further liability with respect to such provisions under such documents; (iv) a final non-appealable judgment or order in excess of $50 million rendered against the City remains unsatisfied for a period of ninety (90) days; (v) the City declares a debt moratorium or comparable extraordinary restriction on the repayment when due and payable of the principal of or interest on any of its general obligation debt; (vi) any governmental authority having appropriate jurisdiction over the City declares a debt moratorium or comparable extraordinary restriction on the repayment when due and payable of the principal of or interest on the bonds (including Bank-owned bonds) or on all general obligation debt of the City; or (vii) each rating agency then rating the bonds withdraws, suspends (each for credit related reasons), or downgrades below investment grade the long-term rating of the City.The bonds will be issued in the daily rate mode with interest paid on the first business day of each month. The bond certificate permits conversion of the bonds, in whole or part by subseries, to the weekly, two-day, index, commercial paper, term, stepped coupon, auction, Adjustable Rate Remarketed Securities, or fixed rate modes. Except for conversions in whole between the daily, two-day and weekly modes bonds so converted will be subject to mandatory tender upon any such conversion. Moody's short-term rating applies to the bonds only when they are in the daily, two-day or weekly rate modes. Bonds in the two-day and weekly rate modes also pay interest on the first business day of each month.Unless the applicable liquidity facility has been automatically terminated or suspended the bonds are subject to optional tender (i) in the daily mode on any business day upon notice from bondholders' by 10:30 a.m., New York City time; (ii) in the weekly rate mode on any business day upon bondholders' notice by 5:00 pm New York City time on the seventh (7th) day prior to the purchase date; and (ii) in the two-day rate mode on any business day upon bondholders notice two business days prior to the purchase date.Each SBPA covers the full principal of the applicable subseries plus 35 days of interest at 9%, the maximum rate applicable to the bonds, and will provide sufficient coverage for the bonds while they are in the daily, two-day or weekly rate modes. Each SBPA is available to pay purchase price to the extent remarketing proceeds received are insufficient.The commitment under each SBPA will terminate upon the earliest to occur of: (i) the scheduled expiration date of the SBPA, (September 8, 2025 for Subseries A-3 and September 8, 2027 for Subseries A-4); (ii) the business day following the date on which the SBPA is replaced with a substitute credit or liquidity facility; (iii) the business day following the date on which all bonds covered by the SBPA have been paid in full (not including defeasance), redeemed, or converted to a rate other than the daily, two-day or weekly rate; (iv) 15 days following the tender agent's receipt of notice from the Bank specifying the occurrence of an event of default under the SBPA and directing the tender agent to cause a mandatory tender of the bonds; and, (v) the date on which the available commitment under the SBPA is terminated.USE OF PROCEEDSProceeds of the bonds will be used to help finance portions of the city's capital plan.PROFILENew York City, the largest city in the United States, is large and diverse, with an estimated population of 8.5 million people and above average wealth levels: personal income per capita is 138% of the US level. The size and scope of the city's operations are broader than most local governments: in addition to the city government, New York City is five counties and the nation's largest public school system, with approximately 1 million students. New York City's GDP is larger than all but four states.METHODOLOGYThe principal methodology used in the long-term ratings was US Local Government General Obligation Debt published in January 2021 and available at https://ratings.moodys.com/api/rmc-documents/70015. The principal methodology used in the short-term ratings was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017 and available at https://ratings.moodys.com/api/rmc-documents/68283. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Nicholas Samuels Lead Analyst State Ratings Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Emily Raimes Additional Contact State Ratings JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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