New York City's controversial courthouse repair and construction program could receive its first jolt of financing with a bond sale in about eight weeks, city and state officials say.
City officials plan to meet today with officials from the New York State Dormitory Authority and PaineWebber Inc., the senior manager and bookrunner for the program's first bond sale. The city and authority settled on PaineWebber as senior manager after a dispute over control of the selection process.
Authority and city officials and underwriters involved in the issue have described the gathering as a "kick-off meeting" to discuss the program's first bond deal, of between $350 million and $400 million.
In addition to the skirmish over the senior manager selection, the meeting follows an agreement between the city and the state Office of Court Administration over the size of the program's first bond deal.
"It looks like we're going forward," said Thomas A. Devane, the authority's deputy executive director for planning and financial analysis. "I'm hopeful we'll come out of that meeting with some kind of schedule for bonding."
Devane said he told the state comptroller's committee on debt sales that a deal could take place before the end of September.
Under the terms of the program, the authority will sell $2.8-billion of bonds during the next 15 years through a lease agreement with the city.
The lease agreement allows the city to diversify its debt load by selling bonds under a different name. City officials say diversification will save the city money in the long run.
The bond sales will satisfy the terms of a 1987 state mandate, which requires the construction of 17 court buildings and the rehabilitation 15 others in the city.
Most of the bond sales are expected to occur over the next 10 years, with the city dedicating a $2.3 billion chunk of its $51.6 billion, 10-year capital strategy to the courthouse program, according to city records.
Despite the recent agreement, city officials have debated the size and scope of the entire program for the past two years with the state Office of Court Administration, which is charged with carrying out the mandate.
The city, for example, has said it could not afford the cost of the mandate, and has attempted to postpone much of its impact until after the year 2000.
The city has also argued that the program's first deal should feature fewer bonds than the almost $1 billion originally called for by state court officers. City officials argued that land use, zoning, and Internal Revenue Service restrictions prevented a larger bond deal.
The program also sparked a dispute between the city and the state dormitory authority over the selection of the deal's bookrunner. The city in March selected Morgan Stanley & Co. as the deal's senior manager. City officials said the firm developed the best ideas to finance the projects in a request for proposal document mailed by the authority and reviewed by city finance officials.
But the dormitory authority chose PaineWebber Inc. as the deal's bookrunner. PaineWebber has a longstanding relationship marketing the court program to municipalities, and authority officials said the authority should control the selection of firms that will sell its bonds.
In recent weeks, the city and the dormitory authority settled their differences, agreeing that PaineWebber will run the books on the first transaction. Morgan Stanley will be a co-manager on the deal, Wall Street sources say.
Morgan Stanley officials were not available for comment yesterday.
A city finance official did not elaborate on what changed the city's mind on the underwriter selection.
"PaineWebber has done a lot of work on the program." the official said. "We thought they have done a good job."
The deal could take place in "six to eight weeks," but the transaction will not be easy to structure. the city finance official said. "This will be a new credit."
In fact, the bonds, when issued, will probably receive a lower credit rating than city general obligations. which are rated Baa1 by Moody's Investors Service and A-minus with a negative outlook by Standard & Poor's Corp., said Michael Shamosh, a bond strategist at Cowen & Co.
"Lease agreements require some sort of appropriation, while GOs are secured by taxing power of the city," Shamosh said. According to the lease agreement, the city will appropriate, or make debt-service payments to the authority, which will then pay bondholders. Unlike city GOs. these bonds are not based on the city's full-faith-and-credit.
"The chances, however small, of a non-appropriation, make them lower credit quality than city GOs." Shamosh said.
But one city official said the deal has "at least a competitive chance" of receiving ratings equal to the city's. The official said the authority, the city, and underwriters will develop an "intercept mechanism" that could bolster the transaction's credit strength.
