Rohatyn Holds Out Chance of $6 Billion For Capital Program In New York City

The chairman of Municipal Assistance Corporation for the City of New York said on Friday that the corporation would be willing to provide the city with up to $6 billion in new capital funding if it was approved by the state.

He also warned that a $1 billion bonding bailout by the corporation for the city is in jeopardy because a revised financial plan is late.

Felix G. Rohatyn, the chairman, said at the corporation's annual board meeting on Friday, that if the city asked and state lawmakers approved such a plan, the corporation has the capacity to sell up to $6 billion of bonds over a three year period to finance pieces of the city's massive capital program.

The use of proceeds from the corporation's new bond sales would probably not be restricted, Mr. Rohatyn speculated. But he admitted the corporation's preference has been and would be to finance school construction projects.

The call for new bonding authorization for the corporation came from Gov. Mario M. Cuomo last Monday night when he said the city's capital costs would be lowered if the corporation could borrow money to finance specific projects at a cheaper market rate than the city has to pay now. Gov. Cuomo -- in a speech to civic, union, and business leaders -- outlined a broad plan of fiscal and capital programs to rejuvenate the city.

On Friday, Mr. Rohatyn said the corporation, which has a better credit rating then the city, could borrow at a rate 150 basis to 200 basis points lower than the city.

The corporation already has new borrowing powers, but they are limited. In 1990, it was given new bonding authorization by the state Legislature for up to $1.5 billion in return for turning its surplus revenues over to the city. But the corporation could only sell new bonds if the city asked and the bonds could only be sold for transit and school construction.

If the authority was given new borrowing powers, it would probably sell $2 billion of bonds annually, over a three year period, he said. The bonds carry maturities of 15 years or less in order not to exceed the corporation's legal maturity limit of the year 2008. When the corporation was created in 1975, it was authorized to sell up to $10 billion of bonds for the city's capital plan. That authorization expired in 1985, and the corporation has only been refunding bond issues since.

The idea for new bonding powers for the corporation received mixed reviews from city officials and Wall Street.

City officials are concerned that the market and investors could view the city as being weak if the corporation sold bonds for its capital program. In addition, a negative perception of the city's fiscal health could depress the price of city bonds and drive up borrowing costs.

New corporation bonds could also adversely affect its outstanding bonds, some market participants said. One senior bond salesman from a New York dealer said, "They are going to have to bond out the future. It is just common sense. The outstanding bonds of the first resolution bonds will trade cheaper."

Mark Tenenhaus, a municipal analyst and vice president with Dean Witter Reynolds Inc., said: "I don't think it is a matter of the perception of making the city look bad or good. The city obviously needs all the help it can get. Any new bonding authorizations, provided that credit quality is assured, would be welcome."

He added, "$6 billion is a lot of debt, any way you slice it. And I think the market would have look at the structure and the security of the MAC proposal."

Meanwhile, a $1 billion bailout for the city remains on hold and is danger of failing because the city has been slow in presenting an updated four year financial plan, Mr. Rohatyn said. The sale must take place before the end of the year or else about $190 million of the deal's savings would be lost because corporation has to pay debt service on the outstanding bonds in February, he said.

Until the city presents a four-year financial plan deemed structurally balanced by the corporation's board and the Financial Control Board, a state fiscal monitor empowered to takeover the city's finances.

Mr. Rohatyn said members of the corporation and the control board met early last week to discuss how each of them could assist each other when reviewing a city plan. The city's plan would have to meet the control board's definition of structural balance before the corporation would do the refunding, Mr. Rohatyn said.

To achieve this budget relief for the city, the Municipal Assistance Corp. would refund $1 billion of its outstanding first resolution bonds and then turn over about $1 billion of revenues to the city over the next the three to five fiscal years.

"I find this a very painful process," Mr. Rohatyn said. "Clearly we would like to help the city with this refunding." He added that a refunding "is not as easy as turning over surplus funds to the city."

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