New York City brings third social GO deal for affordable housing

Investors will have a chance to buy New York City’s third-ever social-labeled general obligation bonds this week.

Comptroller Brad Lander said he has high hopes for the taxable $1.5 billion deal despite the awkwardness of Mayor Eric Adams’ recent federal criminal indictment on bribery charges. 

“[The credit rating agencies] have reported they believe the city’s strong governance framework will provide stability to bondholders, and I’m optimistic, therefore, that we’ll see a great uptake among the social bonds issues,” Lander said.

Bookrunning senior manager BofA Securities is scheduled to take indications of interest Tuesday, with final pricing Wednesday. 

$820 million of the bonds have a social designation verified with a second party opinion by S&P Global Ratings. Within that tranche, $388 million of term bonds will mature in 2049, and $431.9 million will mature in 2054. 

The remaining $680 million consists of serial bonds maturing from 2026 through 2044. Those bonds are callable on or after Oct. 1, 2034. The bonds are federally taxable but exempt from state and local taxes.

Blaylock Van is joint lead manager, and there are 24 co-managers on the deal. Public Resources Advisory Group and Frasca and Associates are co-municipal advisors and Norton Rose Fulbright and Bryant Rabbino are co-counsels.

The bonds are rated Aa2 by Moody’s Ratings, AA by Fitch Ratings and S&P, and AA-plus by Kroll Bond Rating Agency.

“At the heart of the credit fundamentals for New York is certainly its economic profile,” S&P analyst Tim Zemetis said. “It’s a dynamic city, a resilient city here, as proven in the past several years, and one that certainly is a key economic hub.”

Proceeds of the deal will reimburse the city’s Department of Housing Preservation and Development for more than 4,300 units of affordable housing it financed over the prior year and a half. 

DHPD funded the construction projects through programs including the Extremely Low and Low Income Affordability program, the Senior Affordable Rental Agreements program and the Supportive Housing Loan Program. More than 1,700 of the units will house people who were formerly homeless.

S&P’s second party opinion on the bonds’ social designation highlighted the transparency of the programs and the “stringent regulatory environment, which ensures compliance with social objectives.”

New York’s comptroller and the mayor’s offices had been discussing the social bond designation since before Lander and Adams were elected in 2021, Lander said; however, Lander and then-deputy comptroller Marjorie Henning were the first to execute such a deal, a $400 million transaction in October 2022. 

The city issues a lot of bonds — $5.42 billion last year, plus another $6.97 billion from its Transitional Financing Authority — and the social designation helps attracts a different set of buyers, Lander said. The taxable nature of the deal is also aimed at bringing in out-of-state and worldwide investors.

This structure is one of several initiatives Lander says he has created to use finance and asset management tools to improve the city.

Earlier this year, the New York City Employees’ Retirement System invested $60 million in affordable housing units left behind when Signature Bank collapsed. The city also created responsible property management standards for real estate assets in its pension funds.

“I gave the charge to our teams on the municipal finance side, on the asset management side, that we’re looking for strategies that will strengthen the fiscal health and financial position of the city,” said Lander, who announced his candadacy for mayor before charges were brought against Adams, “and also help address as appropriately the big challenges that New Yorkers are facing.”

The city’s social GO deals have financed more than 12,000 units of affordable housing, Lander said. 

The optics of this year’s social bond deal are clouded byAdams, who was recently indicted on federal bribery, campaign finance and conspiracy charges. 

Adams has said he will not resign and intends to defend himself in a trial.

The mayor featured prominently in the city’s initial press release about the deal.

“Our administration is committed to making New York City a safer, more affordable city,” Adams said in the release. “Social bonds are a smart and effective way to achieve our housing goals and give investors a critical opportunity to partner with the city.”

Increasing the amount of affordable housing has been a signature priority of the Adams administration; he’s branded his housing plan as the “City of Yes.”

“I think people certainly are going to have questions about the alleged corruption and fraud,” said John Hallacy of John Hallacy Consulting. “How deep does it go?”

Landercalled for Adams’ resignation the same night the federal government announced his indictment.

“Defending himself against serious federal charges will require a significant amount of the time and attention needed to govern this great city,” Lander said in his statement. “The most appropriate path forward is for him to step down so that New York City can get the full focus its leadership demands.”

Lander said investors don’t need to worry about the charges against the mayor or reported investigations of other members of his administration; the mayor is not particularly involved with any of the processes associated with general obligation bond issuance or repayment. 

“I hope we can reassure people. In this case, the proceeds from the sale are reimbursing spending on affordable housing that already happened by the city’s Department of Housing Preservation and Development in three specific affordable housing programs,” Lander said. “Those deals go through rigorous review. There have not been any investigations or allegations about this set of programs, about the city’s capital program, about the affordable housing developments.”

S&P’s analysts said the city has policies in place that can maintain fiscal operations in spite of mayoral turmoil. However, if the controversies impact Adams’ ability to govern or work with other branches of government, S&P could consider it a credit risk.

Zemetis said S&P is watching for “a discordant relationship between management and the city council, or significant turnover of essential positions” and whether they damage “the budget process, timely budget amendments, if they’re needed throughout the year, or future financial planning and decision making.”

Lander has been a vocal critic of the lack of transparency in New York’s budget process, and said he’s enthusiastic about “modernizing the city’s fiscal framework.”

“I will regularize the process of seeking savings and efficiencies in the city’s budget, rather than have them be emergency two-week fire drills when there’s a reason to believe that there might have to be cuts,” Lander said.

“How much better would it be,” he said, “to have an annual process where commissioners and deputy mayors and the mayor are looking for savings and efficiencies?”

In his role as comptroller, Lander is preparing for the results of the 2024 elections. 

Former President Donald Trump has pledged to eliminate the cap on the State and Local Tax deduction if elected. Trump created the tax in his first term, and eliminating it could damage demand for New York bonds. 

“We’ve modeled it. It had a modest impact when it went into effect, it would certainly have an impact if it got repealed,” Lander said. “I’m rooting very heavily against Trump being elected, which I think would be catastrophic for the city, the state, the country and the planet, in ways far more devastating than the impact on demand for our paper from the potential SALT repeal.”

Lander is also spearheading two lawsuits against New York Gov. Kathy Hochul’s “pause” of congestion pricing. The first of those lawsuits began oral arguments TKTKTK.

“I’m feeling optimistic after Friday,” Lander said. “The judge not only dismissed the governor’s motion to dismiss, but did so with language that I think is encouraging for people who understand that we need congestion pricing to help us pay the $15 billion of investments in the MTA that it will enable.”

Lander has one more lawsuit in the works, from disability activists. The MTA reached a settlement in 2023 to rectify its years of non-compliance with the Americans with Disabilities Act, and without the congestion pricing funding, it cannot build the elevators it committed to. 

Lander worries that, if Trump is reelected, he will halt congestion pricing — he did so in his first term — but confident that state lawmakers will do what they can to institute the tolls, even if the lawsuits are unsuccessful. 

“Reality is the backup plan here,” Lander said. “I think [Hochul and the legislature] will also have to face the fiscal reality that there is not a different place to get $15 billion for our mass transit system.”