Relates to the refunding of bonds and amounts and stated maturity dates of such bonds

BILL NUMBER:S5213

Title of bill

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

Purpose

This legislation would allow NYC to issue refund bonds for one in a series of variable rate bonds from institutions that may be economically unsound or volatile.

Summary of provisions

This bill amends section 90.00 Paragraph b-1 and section 90.10 paragraph c subdivision 3 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.

Existing law

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.

Justification

This bill would 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 allows for targeted refunding of a single or limited number of maturities without triggering a pre-payment of principal. The protections of the Local Finance Law that assure that bonds are outstanding no longer than necessary and that avoid balloon payments are preserved, since they 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 "Will-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.

Legislative history

None.

Fiscal implications

To be determined.

Local fiscal implications

To be determined.

Effective date

This act shall take effect immediately.