S&P: New York City Transitional Finance Authority's Fiscal 2017 Subseries B-1, B2, & B-3 Future Tax-Secured Bonds Rated 'AAA'
At the same time, S&P Global Ratings affirmed its 'AAA' rating on the authority's future tax-secured debt outstanding, including senior - and subordinate-lien bonds and recovery obligation bonds. Finally, S&P Global Ratings affirmed its 'AAA/A-1+', 'AAA/A-1', and 'AAA/A-2' dual ratings on various issuances where the short-term ratings are based on the liquidity support provided by various financial institutions. Simultaneously, the authority is issuing $100 million of future tax-secured tax-exempt subordinate bonds (index rate bonds) fiscal 2017 subseries B-4 for direct placement with a financial institution. The outlook on the long-term rating is stable.
The TFA's future tax-secured debt is rated above the sovereign because we believe the TFA can maintain better credit characteristics than the U. S. in a stress scenario given that pledged revenue is locally derived and has shown resiliency throughout economic cycles. Moreover, we believe that there is limited funding interdependency with the federal government that would constrain the rating.
The 'AAA' rating continues to reflect our opinion of:A strong legal structure that separates the revenue stream supporting the bonds from New York City and New York State; The city's substantial and diverse economy that supports pledged revenue, with a resident population base of 8.5 million that has steadily expanded; New York City is the nation's leading employment center and continues in its role as a major global center for finance, commerce, tourism, and retailing;The resilient nature of the sales and income tax revenue supporting the bonds. This revenue stream is susceptible to economic slowdowns, as seen during the Great Recession although it has been quick to recover;The authority's cash flow forecast through 2020 of continued very strong coverage, which we believe is realistic given the history of outperforming projections; andStrong bond provisions, including what we consider a conservative additional bonds test (ABT).The bonds are secured by a subordinate lien on tax revenues of the authority and certain accounts held by the trustee. Bond proceeds will finance general city capital expenditures.
"The stable outlook reflects our opinion of the strong protections afforded bondholders from statutory revenue--both PIT and sales tax revenue--and the required flow of these funds by statute, as well as the indenture to pay debt service during the bonds' life," said S&P Global Ratings credit analyst Eden Perry. We believe DSC will likely remain very strong during our two-year horizon despite additional planned debt issuance. Furthermore, we believe New York City's substantial and diverse economy will likely continue to support pledged revenue growth. Due to these factors, we do not expect to change the rating in the next two years.
If coverage were to significantly weaken to levels we no longer consider comparable to similarly rated peers because of additional debt (or if tax revenues fall precipitously, which is less likely than the issuance of additional debt, in our view), we could consider a lower rating. We would also view any changes to the tax rate schedule that materially weaken coverage as a potential negative credit event.