Relates to the conditions affecting the refunding of bonds

BILL NUMBER:S7665

Title of bill

An act to amend the local finance law, in relation to the refunding of bonds

Summary of provisions

This bill amends paragraph b-1 of section 90.00 and subdivision 3 of paragraph c of section 90.10 of the Local Finance Law to permit the amounts and stated maturity dates of refunding bonds to be the same as those of the bonds to be refunded.

Reasons for support

Under existing law, refunding bonds must comply with the fifty percent rule or have level or declining debt service. To meet these requirements, a refunding of a single maturity in a series must also refund bonds which yield no present value savings, but are included only to conform the refunding issue to the requirement of Local Finance Law. This restriction causes these structuring bonds to be refunded prematurely, wasting potential present value savings, because tax-exempt bonds generally may be refunded only once under applicable federal tax laws. The provisions of this bill broaden an issuer's ability to utilize advance refunding bonds by allowing, as an alternative, the amounts and stated maturities of the refunding bonds to be set by reference to the refunded bonds. This eliminates the requirement to include structuring bonds that provide no present value savings in a refunding issue. This in turn allows for targeted refunding of a single or limited number of maturities without triggering a pre-payment of principal. The bill protects the portions of the Local Finance Law that prevent balloon payments and that assure bonds are not outstanding longer than necessary, because these provisions remain fully applicable to the original bonds to be refunded. In addition, the structure of the City's overall indebtedness is preserved since the refunding bonds simply replace the bonds originally issued.

The consequences of the unprecedented global financial, liquidity and credit crisis continue to play out in the market, leading many of the banks that had provided liquidity support for the City's variable rate bonds to withdraw or announce their future withdrawal from that business. Targeted refundings are an essential tool to address the issue of banks' not renewing their liquidity facilities, which, absent a refunding, could result in bank-held bonds that not only revert to higher rates increasing the City's debt service expenses, but often trigger "term-out" provisions that require accelerated repayment of those bonds. Correcting the technical restriction on targeted refunding will better equip the City to specifically address the issues of the financial and credit crisis without exposing taxpayers to the risks of increased debt service or principal acceleration on City bonds.

Accordingly, the Mayor urges the earliest possible favorable consideration of this proposal by the Legislature.

Effective date

Immediately.