§ 54.90 — Issuance of bonds or notes with variable rates of interest

New York § 54.90

• Jurisdiction: New York
• Law LFN: Local Finance
• Title 4: Local Obligations: Terms, Form and Contents Thereof; Sale and Issuance Thereof
• Art. 2: Local Indebtedness

Text

§ 54.90 Issuance of bonds or notes with variable rates of interest. a.\nWhenever in the judgment of the finance board the interest of a\nmunicipality would be served thereby, the municipality may issue bonds\nor notes, on or before July fifteenth, two thousand twenty-seven, with\ninterest rates that vary in accordance with a formula or procedure and\nare subject to a maximum rate of interest set forth or referred to in\nthe bonds or notes and may provide the holders thereof with such rights\nto require the municipality or other persons to purchase such bonds or\nnotes or renewals thereof from the proceeds of the resale thereof or\notherwise from time to time prior to the final maturity of such bonds or\nnotes as the finance board may determine and the municipality may\nresell, at any time prior to final maturity, any such bonds or notes\nacquired as a result of the exercise of such rights; provided, however,\nthat at no time shall the total principal amount of bonds and notes\nissued pursuant to this paragraph (other than bonds and notes bearing\ninterest at rates and for periods of time that are specified at\nissuance) exceed ten percent of the limit prescribed by section 104.00\nof this article.\n Notwithstanding the foregoing, the holders of bonds or notes sold\npursuant to this paragraph shall not be provided with the right to\nrequire the municipality or other persons to repurchase the bonds or\nnotes prior to the final maturity thereof unless the municipality has\nentered into one or more letter of credit agreements or liquidity\nfacility agreements for the express purpose of such sale, which\nagreements the municipality is hereby authorized to enter into, and\nwhich shall require a financially responsible party or parties to the\nagreement or agreements, as defined by section 2.00 of this chapter,\nother than the municipality to purchase all or any portion of such bonds\nor notes tendered by the holders thereof for repurchase prior to the\nfinal maturity of such bonds or notes until such time as the right of\nthe holders of such bonds or notes to require repurchase of such bonds\nor notes prior to the final maturity thereof shall cease.\n Notwithstanding the foregoing, whenever in the judgment of the finance\nboard of the city of New York the interest of such city would be served\nthereby, the city of New York may without further approval issue bonds\nor notes, on or before July fifteenth, two thousand twenty-six, with\ninterest rates that vary in accordance with a formula or procedure and\nare subject to a maximum rate of interest set forth or referred to in\nthe bonds or notes and may provide the holders thereof with such rights\nto require the city or other persons to purchase such bonds or notes or\nrenewals thereof from the proceeds of the resale thereof or otherwise\nfrom time to time prior to the final maturity of such bonds or notes as\nthe finance board of the city of New York may determine and the city may\nresell, at any time prior to final maturity, any such bonds or notes\nacquired as a result of the exercise of such rights; provided, however,\nthat at no time shall the total principal amount of bonds and notes\nissued by the city of New York pursuant to this paragraph (other than\nbonds and notes (1) bearing interest at rates and for periods of time\nthat are specified without reference to future events or contingencies,\nor (2) described in section 136.00 of this article) exceed twenty-five\npercent of the limit prescribed by section 104.00 of this article.\n b. To facilitate the marketing of any issue of bonds and notes issued\npursuant to this section, such municipality may, notwithstanding any\nlimitation on private sale of bonds and notes provided by law, and\nsubject to rules promulgated by the state comptroller governing such\nsales: (i) arrange for the underwriting of such bonds and notes at\nprivate sale through negotiated agreement, compensation for such\nunderwriting to be provided by negotiated fee or by sale of such bonds\nand notes to an underwriter at a price of less than the sum of par value\nof, and accrued interest on, such obligations; or (ii) arrange for the\nprivate sale of such bonds and notes through negotiated agreement,\ncompensation for such sale to be provided by negotiated fee, if\nrequired. The cost of such underwriting or private placement shall be\ndeemed a preliminary cost for the purposes of section 11.00 of this\nchapter.\n c. The finance board of such municipality is hereby authorized and\nempowered, in conformance with paragraphs c through g of section 168.00\nof this chapter, to enter into such agreements as it deems reasonable\nand appropriate to facilitate the issuance, sale, resale and repurchase\nof such bonds and notes, including but not limited to agreements with\nfinancially responsible third parties for the remarketing or repurchase\nof such bonds and notes in accordance with terms and conditions\ndetermined by such finance board, provided, however, that no such\nagreement shall cause or have the effect of causing any annual principal\ninstallment of an issue of serial bonds to be more than fifty per centum\nin excess of the smallest prior installment unless the finance board has\ndetermined to provide for substantially level or declining annual debt\nservice payments in accordance with paragraph d of section 21.00 of this\nchapter, in which case no such agreement shall cause or have the effect\nof causing any annual principal installment of an issue to vary from the\namounts determined by the finance board to be required to comply with\nsuch paragraph at the time of issuance of the bonds or notes. The\nfinance board may, by resolution, delegate its power to contract\npursuant to this section to the chief fiscal officer, as defined in\nsection 2.00 of this chapter, of such public body in which event the\nchief fiscal officer shall exercise such power until the finance board,\nby resolution, shall elect to reassume the same. For purposes of this\nsection, the finance board of the city of New York shall mean the mayor\nand the city comptroller.\n d. 1. On or before July fifteenth, two thousand twenty-six the mayor\nand comptroller of the city of New York may:\n (i) enter into interest rate exchange or similar agreements with any\nperson under such terms and conditions as the mayor and comptroller may\ndetermine, including provisions as to default or early termination and\nindemnification by the city or any other party thereto for loss of\nbenefits as a result thereof;\n (ii) procure insurance, letters of credit or other credit enhancement\nwith respect to such agreements;\n (iii) provide security for the payment or performance of its\nobligations with respect to agreements described in item (i) of this\nsubdivision from such sources and with the same effect as is authorized\nby applicable law with respect to security for its bonds, notes or other\nobligations, provided, however, that any payment or performance of\nobligations with respect to agreements described in item (i) of this\nsubdivision in connection with debt obligations which carry the full\nfaith and credit of the city shall be subject to appropriation; and\n (iv) modify, amend, or replace such agreements.\n 2. For the purposes of this paragraph:\n (i) "Interest rate exchange or similar agreement" shall mean a written\ncontract entered into in connection with the issuance of city debt, or\nin connection with such city debt already outstanding, with a\ncounterparty to provide for an exchange of payments based upon fixed\nand/or variable interest rates, and shall be for exchanges in currency\nof the United States of America only.\n (ii) "Excluded agreements" shall mean the total notional amount of\ninterest rate exchange or similar agreements entered into for the\npurpose of reducing or eliminating a situation of risk or exposure under\nan existing interest rate exchange or similar agreement, including, but\nnot limited to a counterparty downgrade, default, or other actual or\npotential economic loss.\n (iii) Interest rate exchange; limitations. Any interest rate exchange\nor similar agreements entered into pursuant to item (i) of subdivision\none of this paragraph shall be subject to the following limitations:\n (A) the counterparty thereto shall have credit ratings from at least\none nationally recognized statistical rating agency that is within the\ntwo highest investment grade categories and ratings which are obtained\nfrom any other nationally recognized statistical rating agencies shall\nalso be within the three highest investment grade categories, or the\npayment obligations of the counterparty shall be unconditionally\nguaranteed by an entity with such credit ratings;\n (B) the written contract shall require that should the rating: (I) of\nthe counterparty, if its payment obligations are not unconditionally\nguaranteed by another entity, or (II) of the entity unconditionally\nguaranteeing its payment obligations, if so secured, fall below the\nrating required by clause (A) of this item, that the obligations of such\ncounterparty shall be fully and continuously collateralized by direct\nobligations of, or obligations the principal and interest on which are\nguaranteed by, the United States of America, or any agency thereof with\na net market value of at least one hundred two percent of the net market\nvalue of the contract to the authorized issuer and such collateral shall\nbe deposited with the authorized issuer or an agent thereof;\n (C) the total notional amount of all interest rate exchange or similar\nagreements shall not exceed an amount equal to twenty-five percent of\nthe limit prescribed by section 104.00 of this chapter; provided,\nhowever, that such total notional amount shall not include any excluded\nagreements;\n (D) no interest rate exchange or similar agreement shall have a\nmaturity exceeding the maturity of related city debt; and\n (E) each interest rate exchange or similar agreement shall be subject\nto an independent finding that its terms and conditions reflect a fair\nmarket value of such agreement as of the date of its execution,\nregardless of whether such agreement was solicited on a competitive or\nnegotiated basis.\n 3. (i) Prior to authorizing the approval of any contract for interest\nrate exchange or similar agreement pursuant to subdivision one of this\nparagraph, the finance board of the city shall adopt guidelines for the\nuse of interest rate exchange or similar agreements which shall include,\nbut not be limited to the following:\n (A) the conditions under which such contracts can be entered into;\n (B) the methods by which such contracts are to be solicited and\nprocured;\n (C) the form and content such contracts shall take;\n (D) the aspects of risk exposure associated with such contracts;\n (E) standards and procedures for counterparty selection;\n (F) standards for the procurement of credit enhancement, liquidity\nfacilities, or the setting aside of reserves in connection with such\ncontracts consistent with the limitations of section 168.00 of this\nchapter;\n (G) provisions for collateralization or other requirements for\nsecuring the financial interest in such contracts;\n (H) the long-term implications associated with entering into such\nagreements, such as costs of borrowing, historical trends, use of\ncapacity for variable rate bonds and related credit enhancements, and\nany potential impact on the future ability to call bonds, including\nopportunities to refund related debt obligations, and similar\nconsiderations;\n (I) the methods to be used to reflect such contracts in the city's\nfinancial statements;\n (J) financial monitoring and periodic assessment of such contracts by\nthe city; and\n (K) such other matters relating thereto as the finance board shall\ndeem necessary and proper.\n (ii) The city shall issue a quarterly report to the director of the\nbudget, the chairs of the senate finance committee and the assembly ways\nand means committee, and the state comptroller, on or before the\nfifteenth day of each month following the end of each such quarter in\nwhich it enters into or continues to be a party to a contract for\ninterest rate exchange or similar agreement, which shall list all such\ncontracts entered into pursuant to this section and shall include, but\nnot be limited to, the following information for each such contract, as\napplicable:\n (A) a description of the contract, including a summary of the terms\nand conditions, rates, maturity, the estimated market value of each\nagreement, and other provisions thereof and the method of procurement;\n (B) any amounts which were required to be paid and received, and any\namounts which actually were paid and received thereunder;\n (C) any credit enhancement, liquidity facility or reserves associated\ntherewith including an accounting of all costs and expenses incurred,\nwhether or not in conjunction with the procurement of credit enhancement\nor liquidity facilities;\n (D) a description of each counterparty;\n (E) an assessment of the counterparty risk, termination risk, and\nother risks associated therewith; and\n (F) such report shall include a copy of the guidelines required by\nitem (i) of this subdivision in the quarter after they are adopted or\nsubsequently modified.\n