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Rating Action:

Moody's assigns Aa1/VMIG 1 to New York State's Personal Income Tax Revenue Ref. Bonds Series 2019C issued by DASNY; outlook stable

22 Oct 2019

New York, October 22, 2019 -- Moody's Investors Service has assigned Aa1/VMIG 1 ratings to approximately $79 million of the State of New York's State Personal Income Tax Revenue Refunding Bonds (General Purpose) Series 2019C to be issued through the Dormitory Authority of the State of New York (DASNY). The sale will take place the week of October 28. The outlook on the Aa1 long term rating is stable.

RATINGS RATIONALE

The Aa1 long-term rating on the State Personal Income Tax Revenue Bonds reflects the highly essential purposes for which the funds are borrowed and the very strong incentive to appropriate tax revenues to pay debt service. New York State personal income tax and Employer Compensation Expense Program (ECEP) receipts that are dedicated to pay debt service are available to the state for general purposes only after an appropriation for debt service and if scheduled debt service set-asides have been made. The strength of the security structure supports a very high rating, but the need to appropriate the revenues effectively caps the rating at that of the state of New York, which is rated Aa1 with a stable outlook. The state's personal income tax and ECEP base provide very strong coverage of debt service.

The VMIG 1 short-term rating is derived from (i) the credit quality of JPMorgan Chase Bank, N.A (Bank) as liquidity support provider under the Standby Bond Purchase Agreement (SBPA), (ii) the long-term rating of the bonds and (iii) Moody's assessment of the likelihood of an early termination or suspension of the SBPA without a final mandatory tender. Events that would cause termination or suspension of the SBPA without a mandatory purchase of the bonds are directly related to the credit quality of the Authority and/or the State. Accordingly, the likelihood of any such event occurring is reflected in the long-term rating assigned to the bonds.

Our current short-term Counterparty Risk (CR) Assessment of the Bank is P-1(cr).

RATING OUTLOOK

The outlook for New York's long term rating is stable, reflecting its adequate liquidity, adequate combined formal and informal reserves, and strong financial management. The outlook also reflects our expectation that the state will close budget gaps largely with recurring solutions and contain its structural fiscal imbalance.

FACTORS THAT COULD LEAD TO AN UPGRADE

-- Long-term rating: Change in the legal security providing for direct pledge of segregated personal income tax and ECEP revenues without annual appropriation requirement

-- Long-term rating: State rating upgrade

-- Short-term rating: N/A

FACTORS THAT COULD LEAD TO A DOWNGRADE

-- Long-term rating: Diversion of state personal income tax or ECEP receipts prior to deposit to the Revenue Bond Tax Fund (RBTF)

-- Long-term rating: Failure to appropriate financing agreement payments

-- Long-term rating: State rating downgrade, which could be triggered by growing structural budget gaps and reliance on non-recurring resources for recurring expenses

-- Short-term rating: Moody's downgrades the short-term CR assessment of the Bank

--Short-term rating: Moody's downgrades the long-term rating of the Bonds

LEGAL SECURITY

The DASNY State Personal Income Tax Revenue Bonds are secured by a pledge of payments made pursuant to a financing agreement entered into by DASNY and the state Director of Budget, backed by a dedication of 50% of New York State personal income tax (PIT) receipts and 50% of receipts of the ECEP. The state comptroller deposits the dedicated personal income tax and ECEP receipts into the revenue bond tax fund upon certification of revenues by the commissioner of the state's Department of Taxation and Finance. There must be a legislative appropriation to pay debt service and the monthly financing agreement payments must be made in order for receipts in excess of debt service requirements to be transferred to the general fund and used for any other purpose. While the legislature has no obligation to appropriate the funds, this structure provides a very strong incentive to appropriate since the state relies heavily on the excess revenues to meet its budgetary needs.

LIQUIDITY SUPPORT FOR TENDERS

The Bank may automatically terminate or suspend its payment obligation under the SBPA if:

- the Authority fails to pay principal and interest on the bonds or on any parity debt;

- the Authority enters bankruptcy or otherwise becomes insolvent;

- the Authority or any governmental authority imposes a debt moratorium, or comparable extraordinary restriction on repayment of debt with respect to the bonds or any parity debt;

- Any provision of the governing transaction documents relating to either (a) the payment of principal of and interest on the bonds or any parity debt or (b) the Authority's obligation to repay the principal and interest on the Bonds and all parity debt, shall cease to be valid and binding on the Authority or shall be declared, in a final, non-appealable judgment, to be null and void; or the Authority repudiates or denies it has any further liability or the obligation with respect to such provisions; or the Authority or the State takes any official action which would invalidate such provisions under such documents.

- A final and non-appealable judgment against the Authority in excess of $10 million remains unpaid, unstayed, undischarged or undismissed for a period of 60 days;

- Each rating agency rating the bonds assigns a rating to the bonds or any unenhanced long-term parity debt below investment grade or withdraws or suspends any such rating, in each case, for a credit-related reason.

The bonds will be issued in the weekly rate mode with interest paid on the fifteenth day of each month. The interest rate mode may be converted, in whole or in part, to the daily, monthly, flexible, term or fixed rate modes. Bonds so converted will be subject to mandatory tender upon each mode change date. Moody's short-term rating applies while the bonds are in the weekly and daily rate modes only.

Bonds in the weekly rate mode may be optionally tendered on any business day with notice to the tender agent and the remarketing agent not less than seven days prior to the purchase date. Bonds in the daily rate mode are subject to optional tender on any business day with notice to the tender agent and the remarketing agent by 11:00 a.m., New York City time.

The bonds are subject to mandatory tender on: (i) each mode change date; (ii) the fifth business day prior to the expiration date of the SBPA; (iii) each substitution date of the SBPA; (iv) any business day no later than the fifth (5th) business day prior to the termination of the SBPA following trustee's receipt of notice of the occurrence of an event of default under the SBPA (other than an automatic termination event); and (v) any business day specified by the Authority in a notice to the trustee but not less than 20 days after the trustee's receipt of such notice.

The SBPA, which is sized for the full principal amount of the Bonds plus 34 days of interest at 12%, the maximum rate for the bonds, will secure payments of purchase price while the Bonds are in the daily or weekly rate modes. The SBPA will be available to pay purchase price to the extent remarketing proceeds received are insufficient. Under the terms of the SBPA, conforming draws received by the Bank by 12:00 p.m. (New York time) will be honored by 2:00 p.m. (New York time) on the same business day.

The SBPA terminates upon the earliest to occur: (i) the stated expiration date, October 29, 2021; (ii) the date on which the obligation of the Bank to purchase tendered Bonds is terminated due to the occurrence of an automatic termination event; (iii) on the 30th day following the tender agent's receipt of notice of termination from the Bank; (iv) the date on which the available commitment under the SBPA is reduced to zero; (v) the business day immediately succeeding the conversion of all the Bonds to a rate mode other than the daily or weekly rate mode; or (vi) the business day immediately succeeding the substitution date.

USE OF PROCEEDS

Proceeds of the bonds will be used primarily to refund certain tax-exempt variable rate demand bonds previously issued by the state's Housing Finance Authority.

PROFILE

New York State is the 4th largest US state by population. Located in the Northeastern US, New York has a large and diverse economy with high per capita income at 126% of the US average and gross state product of $1.676 trillion.

METHODOLOGY

The principal methodology used in the long-term rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018. The principal methodology used in the short-term rating was Variable Rate Instruments Supported by Conditional Liquidity Facilities published in March 2017. An additional methodology used in the long-term rating was US Public Finance Special Tax Methodology published in July 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.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 ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Marcia Van Wagner
Lead Analyst
State Ratings
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Matthew Butler
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

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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