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10 Oct 2019
New York, October 10, 2019 -- Moody's Investors Service has assigned a Aa1 rating to the City of New York, NY's $100 million General Obligation Bonds, Fiscal 2020 Series B, Subseries B-3 (Adjustable Rate Remarketed Securities, or ARRS). The outlook is stable.
The Aa1 ratings reflect continued strengthening and diversification of New York City's economy, reducing its reliance on volatile financial services. The city's competitive advantages include a young and highly skilled labor pool, access to higher education and medical centers, strong domestic and international transportation links, and low crime rates. Those fundamentals position New York City for strong future growth, especially in media, medical research, and technology, while maintaining its deep strength in financial services.
The ratings also reflect the city's ongoing strong financial management, including stronger reserves that position it better to withstand an economic downturn. Budgetary and financial management are strong and frequent updates to multi-year financial plans provide the city a transparent view of future budget pressures. New York City's revenue base is large and diverse. Its financing responsibilities also 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. Still, the city's fixed costs for debt service, pensions and retiree health care have decreased and are now below the median for the largest local governments and in the bottom five among the nation's largest cities.
The outlook for New York City is stable. The city's institutionalized budgetary controls and early recognition of future budget pressure help it maintain a balanced financial position and weather economic downturns. The city's economy continues to diversify, becoming less reliant on a volatile financial services sector, and its finances will benefit. Pension funding practices are strong but retiree health care liabilities are a challenge that will require ongoing economic growth to remain affordable.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Stronger reserves, at levels similar to higher-rated peers, or establishment of formal policies to increase reserves
- Reduction of debt burden or further reduction in fixed cost
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Divergence from well-established fiscal practices and strong budgetary management
- Emergence of significant liquidity strain, especially that results in the need for large cash-flow borrowing
- Negative change in economic fundamentals outside normal economic fundamentals
The bonds are general obligation, 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.
The Subseries B-3 bonds will be issued in the Adjustable Rate Remarketed Securities Daily Mode, and on October 22 the rate will reset daily. With five business days' notice, bondholders may tender their bonds. During that period the city will seek to remarket, convert or refund the bonds. If it is unable to complete one of those transactions, the bonds will be returned to the bond holder and bear interest conservatively, 12%. The city budgets for its variable rate debt at the maximum rate and considering its strong market access and the relatively small amount of debt being issued compared to the city's total portfolio, the ARRS structure poses minimal credit risk.
USE OF PROCEEDS
Proceeds of the bonds will be used to help finance the city's capital plan.
New York City, the largest city in the United States, is large and diverse, with a population of 8.4 million people and above average wealth levels: personal income per capita is 137% 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 1.1 million students. New York City's GDP is larger than all but four states.
The principal methodology used in this rating was US Local Government General Obligation Debt published in September 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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 ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
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Please see www.moodys.com for any updates on changes to
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