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The Bond Buyer

February 12, 2004, Thursday

SECTION: NEWS; Pg. 1

LENGTH: 831 words

HEADLINE: N.Y.C. Sees $2.7B in West Side Bonds 
New Agency To Sell Rare PILOT Structure

BYLINE: By Michael McDonald

BODY:
New York City yesterday proposed selling $2.7 billion in long-term revenue bonds and $900 million in commercial paper to help finance the redevelopment of a largely industrial neighborhood on Manhattan's far West Side, in hopes of expanding the bustling, high-rent midtown business district.

Goldman, Sachs & Co., Bear, Stearns & Co., and J.P. Morgan Chase were selected as senior managers for the program.

Under the plan, the city would establish the Hudson Yards Infrastructure Corp. to sell the long-term bonds and commercial paper over 10 years, starting next year with a $470 million bond sale. Goldman would manage the first bond deal, while Bear would be tapped for future sales. J.P. Morgan would manage the commercial paper side of the program, which would carry contingency credit enhancement from the city's Transitional Finance Authority.

"The bonds issued by the Hudson Yards Infrastructure Corp. are going to be secured by incremental revenues, the biggest one being PILOTs payments in lieu of taxes that will be paid by new development in this area," said Mark Page, director of the city's Office of Management and Budget. "The commercial paper will have a commercial credit back-up and behind that, a back-up from the TFA."

The bond sales will finance the westward extension of the No. 7 subway line, the construction of a platform to provide for development over a section of the Metropolitan Transportation Authority's Hudson Rail Yards, and the preparation of sites in the proposed district for commercial and residential development.

There would be separate financing for the construction of a second platform to accommodate a proposed stadium for the New York Jets, as well as a roof for the stadium and an extension of the Jacob K. Javits Convention Center, which would bring the price tag for the entire Hudson Yards plan to around $5 billion.

The $900 million in commercial paper sales would finance debt service costs associated with the earlier long-term bond sales, to compensate for the prospective lag time between the creation of the district and the generation of new revenues. The TFA has never been used to provide contingent credit support, though it does have exposure on a $25 million interest rate cap it sold the city's Housing Finance Corp.

The city has proposed backing the $2.7 billion in long-term bonds with a series of designated revenues from a defined district on the far West Side -- primarily Pilots from commercial property owners and residential property taxes. New York City, which would not offer any additional obligation on the debt, has never sold Pilot-backed bonds before, and they are a rare structure in the municipal market.

The city has projected that in all, 42 million square feet of new property will be constructed in the district, generating $16.2 billion in revenues between 2005 and 2035, including $7.2 billion from Pilots and $5.3 billion from residential property taxes. The total economic activity would generate $67 billion in incremental revenues to the city and New York State. The proposed district would run west from Ninth Avenue to 12th Avenue and north from 28th and 42nd streets.

In addition to Pilots and property taxes, the city said the pledge on the bonds would include revenues from 5.1 million square feet of development on the eastern rail yard, 5.7 million square feet of transferred development rights, the sale of other public property in the district, bonus payments for air rights in the district, and payments in lieu of sales taxes.

"We are attempting to convince the rating agencies and others that we will be able" to attract people to develop the area, said deputy mayor Dan Doctoroff, who is leading the redevelopment effort, which includes a plan to use the Jets stadium as the main venue for the city's bid for the 2012 Summer Olympics.

"We've got to convince everybody -- and we've convinced ourselves -- that the demand exists to build the buildings," Doctoroff added.

In order to proceed with the redevelopment, the City Council must approve a rezoning of the neighborhood and the city must buy the rights to develop over the MTA's rail yards. City officials would not say when they will release financing plans for expanding Javits and helping the Jets.

Wall Street sources said anonymously that the selection of Bear Stearns came as no surprise, given its prominence in underwriting major deals in New York, such as the MTA's recent debt restructuring, while J.P. Morgan has one of the industry's largest commercial paper operations. Goldman Sachs is also in the city's senior underwriting syndicate and was financial adviser on the MTA's restructuring.

Bear Stearns also produced a proposed Hudson Yards financing plan for the city three years ago. None of the firms selected would comment. In all, nine firms were asked to submit proposals.