Fitch Ratings has assigned a '
The series B bonds will be sold through negotiated sale on
The ratings on the outstanding TFA senior lien and subordinate lien FTS bonds are '
The Rating Outlook is Stable.
RATING ACTIONS
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VIEW ADDITIONAL RATING DETAILS
SECURITY
The bonds are payable from revenues derived from a personal income tax (PIT) and a sales and use tax (SUT) (collectively, the pledged revenues) imposed by
SUT revenues will be available for the payment of debt service if PIT revenues are projected to be insufficient to provide at least 150% of the maximum annual debt service (MADS) on the TFA's outstanding bonds.
Senior bonds are subject to a
The subordinate additional bonds test (ABT) requires that pledged revenues for the most recent fiscal year are at least 3x the sum of
ANALYTICAL CONCLUSION
The '
Economic
Fitch considers the city's status as an international center for numerous industries and a major tourism destination, as well as its proven resilience through the recent and prior severe economic disruptions, as credit strengths. Employment recovery had lagged national trends following the pandemic but job growth picked up notably during calendar 2022 and is continuing in 2023 but at a slower pace. The city has recovered approximately 98% of jobs lost during the pandemic. The local economy and operating budget remain strongly linked to the financial activities sector, which was relatively unaffected by the pandemic and accounts for 25% of earnings compared with 10% for the
KEY RATING DRIVERS
Strong Legal Framework: The bankruptcy-remote, statutorily defined nature of the issuer pursuant to state legislation and a bond structure involving a first-perfected security interest in the PIT and SUT revenues are key credit strengths. Payment of the PIT and SUT revenue to the TFA is not subject to city or state appropriation. Statutory covenants prohibit action that would impair bondholders.
Robust Resilience: Fitch does not make a rating distinction between the senior and subordinate liens due to the high coverage levels and strong legal and practical protections against overleveraging. Fitch anticipates the security provided for both liens will remain highly resilient through the current economic environment and future downturns.
Solid Growth Prospects: Statutory revenues benefit from the city's unique economic profile, which centers on its identity as an international center for numerous industries and a major tourist destination. Fitch believes longer-term growth of pledged revenues may slow from historical levels but remain solid at levels between inflation and
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Not applicable as the bonds are rated at Fitch's highest rating category.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A decline in pledged revenues that is more severe and prolonged than anticipated, combined with a significant increase in leverage beyond Fitch's expectation.
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
CURRENT DEVELOPMENTS
Pledged revenues for fiscal 2023 are outpacing expectations compared with the city's
Pro-forma all-in debt service coverage based on fiscal 2022 pledged revenues and projected fiscal 2027 annual debt service following expected debt issuances of
Fiscal 2022 PIT revenues benefitted from federal stimulus and strong performance of financial services companies. These revenues are projected by the city to improve moderately by 3% during fiscal 2023 and then see a decline during fiscal 2024 before resuming growth through fiscal 2027. While withholding is holding up better than expected in fiscal 2023, greater than expected April and June estimated payments and NYC PTET payments being made have affected results.
The NYC PTET was created in 2022. The pass-through is structured as a workaround to the
Fiscal 2023 SUT revenues are projected to increase 11.6% yoy. The growth reflects strong local consumption combined with an inflationary impact on the costs of goods and services and a continued increase in tourist activity in the city following an active holiday season, despite a slow return to office recovery. City projections show SUT revenues growing at a more moderate pace from fiscal 2024 through fiscal 2027 as spending activity slows, due to the higher interest rate environment and reduced personal savings accounts levels following record spending levels during fiscal 2022 and forecast for fiscal 2023.
Fitch considers these projections to be reasonable as it expects tourism levels, which have bounced back close to pre-pandemic levels, to remain strong, and job growth to continue to show improvement and eventually recover to pre-pandemic levels. However, uncertainty still exists regarding the impact of still elevated inflation, a rising interest rate environment and changes in remote work practices, which together could moderately affect pledged revenue performance.
ECONOMIC
The economic profile of the city features high wealth levels; per capita personal income is approximately 130% of the
Estimated census figures for
The city's tourism sector is an important driver, with a reported record of nearly 67 million visitors in 2019. The city had experienced reduced activity due to the pandemic; however, activity has rebounded, as evidenced by improved levels of hotel occupancy during fiscal 2023 when compared with pre-pandemic levels and higher average daily room rates and improved number of air travelers as reported by the
DEDICATED TAX CREDIT PROFILE
As a true sale structure, TFA's rating is limited to six notches above
Strong Legal Framework Protects Bond Repayment
The rating reflects the bankruptcy-remote, statutorily defined nature of the issuer pursuant to state legislation, a bond structure involving a first-perfected security interest in revenues that are not subject to appropriation, statutory covenants prohibiting action that would impair bondholders,
Pledged Revenue Overview
PIT and SUT revenues are imposed by the city and collected by the state. Revenues from the PIT and the SUT, if required, flow directly from the state comptroller to the TFA trustee, and are not subject to state or city appropriation. The city receives residual revenues only after advance quarterly funding of debt service. The state is able to unilaterally modify or repeal tax law as it relates to the PIT or SUT, but Fitch believes the risk of this is negligible given the city's dependence on residual revenues for its operations.
Solid Pledged Revenue Growth Prospects
Total pledged revenues grew at a CAGR of approximately 6.2% over the 10 fiscal years through 2022. Fitch believes the city continues to have sound economic growth prospects. Given the sensitivity of both PIT and SUT revenues to economic activity, Fitch expects revenue growth over time to exceed Fitch's expectations for long-term rates of inflation, but be below GDP growth, consistent with a 'aa' revenue growth assessment.
PIT revenues totaled approximately 66% of fiscal 2022 pledged revenues and are expected to provide most of the growth and volatility in pledged revenues, at least in the near term, due to the recent growth in employment levels, offset partially by the potential changes in residency and commuting patterns due to the prevalence of remote work, and variability of employee compensation related to financial services activities.
The PIT consists of a base rate and a 14% surcharge. The PIT rate has changed over time, most recently with a base rate increase in 2010. The base rate and 14% surcharge were most recently extended in
In
Sensitivity and Resilience of Pledged Revenues through Economic Declines
DSC on all FTS bonds from fiscal 2022 pledged revenue was a very strong 7.95x. To evaluate the sensitivity of the dedicated revenue stream to cyclical decline, Fitch considers both revenue sensitivity results (using a 1% decline in national GDP stress scenario) and the largest decline in revenues over the period covered by the revenue sensitivity analysis.
The Fitch Analytical Stress Test model generates a 6.8% decline in pledged revenue under the -1%
Scenario results are approximately 10x the moderate scenario output and 4x the largest historical decline, and are based on issuance up to the 3.0x ABT. These results are consistent with a '
Fitch assumes the city would delay future borrowing plans if pledged revenues fell significantly short of management's expectations to preserve sufficient residual revenues to fund operating expenses.
Pledged PIT revenues are deposited into the collection account daily, with a monthly amount retained in the debt service fund equal to one-half of the debt service payable in the three-month period. Revenues are retained for debt service until debt service is fully funded for the following three-month period.
Date of Relevant Committee
In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Additional information is available on www.fitchratings.com
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