Moody's assigns Aa2 to $1.2B of NYC GO bonds; outlook stable

$39.8 billion of GO debt outstanding; sale reflects new money and conversion and reoffering of floating rate debt as fixed rate

Moody's Rating

Issue: General Obligation Bonds, Fiscal 2015 Series 1; Rating: Aa2; Sale Amount: $315,000,000; Expected Sale Date: 6/2/2015; Rating Description: General Obligation

Issue: General Obligation Bonds, Fiscal 2015 Series F, Tax-Exempt Subseries F-1; Rating: Aa2; Sale Amount: $300,000,000; Expected Sale Date: 6/2/2015; Rating Description: General Obligation

Issue: General Obligation Bonds, Fiscal 2015 Series F, Taxable Subseries F-2; Rating: Aa2; Sale Amount: $105,000,000; Expected Sale Date: 6/2/2015; Rating Description: General Obligation

Issue: General Obligation Bonds, Fiscal 2015 Series F, Taxable Subseries F-3; Rating: Aa2; Sale Amount: $195,000,000; Expected Sale Date: 6/2/2015; Rating Description: General Obligation

Issue: General Obligation Bonds, Fiscal 2015 Series F, Tax-Exempt Adjustable Rate Subseries F-4; Rating: Aa2; Sale Amount: $100,000,000; Expected Sale Date: 6/17/2015; Rating Description: General Obligation

Issue: General Obligation Bonds, Fiscal 2015 Series F, Tax-Exempt Adjustable Rate Subseries F-5; Rating: Aa2; Sale Amount: $100,000,000; Expected Sale Date: 6/17/2015; Rating Description: General Obligation

Issue: General Obligation Bonds, Fiscal 2015 Series F, Tax-Exempt Adjustable Rate Subseries F-7; Rating: Aa2; Sale Amount: $50,000,000; Expected Sale Date: 6/17/2015; Rating Description: General Obligation

Opinion

Moody's Investors Service has assigned Aa2 ratings to $1.2 billion of new money and reoffered New York City general obligation bonds. The new money bonds consist of three fixed rate series and the adjustable rate series: $300 million General Obligation Bonds, Fiscal 2015 Series F, Subseries F-1; $105 million Subseries F-2; and $195 million Subseries F-3; $100 million Adjustable Rate Subseries F-4; $100 million Adjustable Rate Subseries F-5; and $50 million Adjustable Rate Subseries F-7. The fixed rate bonds are scheduled to price June 2. The three adjustable rate series will have liquidity support provided in the form of letters of credit. The adjustable rate bonds are scheduled to price June 17, and separate reports on the terms of the letters of credit are forthcoming. We have also assigned a Aa2 rating to $315 million General Obligation Bonds, Fiscal 2015 Series 1, which reflects the conversion and reoffering of several outstanding series of variable rate demand bonds. The conversions are scheduled for June 18. Additionally, we maintain Aa2 underlying ratings on the city's $50 million General Obligation Bonds, Fiscal 1995 Series F, Subseries F-4, in conjunction with their conversion from variable rate demand bonds and reoffering as floating rate notes. After the conversion, also scheduled for June 18, the bonds will bear interest at a rate equal to SIFMA plus a spread to be determined at pricing.

SUMMARY RATING RATIONALE

The ratings reflects the city's large and resilient economy, its extraordinarily large tax base, its institutionalized budgetary and financial management controls, its proactive responses to budget strain during economic downturns, the key but diminishing role of the volatile financial services sector, and a high budgetary burden from the combination of debt service, pension, and employee and retiree health care costs.

OUTLOOK

The outlook for New York City's general obligation bonds is stable. The city's institutionalized budgetary controls and early recognition of future budget pressure help it maintain a balanced financial position and weather economic downturns. The city's economy is reliant on a volatile financial services sector, but it continues to diversify, and its finances will benefit. Despite its strong budgetary controls, high costs for debt service, pensions and retiree health care will continue to be a challenge for the city.

WHAT COULD MAKE THE RATING GO UP

-- Sustained reduction in the growth of the city's debt burden and other fixed costs, and establishment of formal policy for managing debt within prescribed constraints

-- Establishment of significant formal budget reserves to buffer the inherent volatility of the financial services sector

-- Improved and continuing growth in city employment and the property tax base

WHAT COULD MAKE THE RATING GO DOWN

-- Inability to manage rapidly rising costs in non-discretionary spending such as debt service, personnel costs, or pensions

-- Divergence from well-established fiscal practices

-- Emergence of significant liquidity strain and the need for large cash-flow borrowings

OBLIGOR PROFILE

In addition to the notable size of its economy discussed above, New York City has a population of 8.2 million people and personal income per capita that is 128% of the US level.

LEGAL SECURITY

The bonds are general obligation, full faith and credit obligations of the city, secured by a real property tax levied without limitation as to rate or base.

USE OF PROCEEDS

The bonds originally were issued to finance portions of the city's capital plan.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was US Local Government General Obligation Debt published in Janaury 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.