Bonds

Nassau County, N.Y., makes foray into primary with two upgrades in hand

Fresh off two ratings upgrades this month, Nassau County, New York, is set to issue $269.54 million of general obligation bonds in two separate sales in the upcoming week.

First, J.P. Morgan Securities will price the county’s $114.86 million of Series 2023B (Aa3/AA-minus/A-plus/NR) general improvement refunding GOs on Tuesday.

On Thursday, the county will competitively sell $154.68 million of Series 2023A GOs at 10 a.m., ET.

Proceeds from the Series 2023A bonds will fund various county capital improvement projects while the Series 2023B bonds will refund outstanding bonds for savings.

On April 13, Moody’s Investors Service raised its rating on the county’s issuer and limited tax GO bond ratings to Aa3 from A1 and upgraded the Nassau Health Care Corp. to Aa3 from A1. The outlook remained positive. Ahead of the sale, the county has about $1.6 billion in GOLT bonds outstanding.

“The upgrade to Aa3 reflects the continued strengthening of the county’s financial position and liquidity,” Moody’s said. “In addition to the strengthening financial position, the county has managed to eliminate a number of large liabilities over the past two years, improving financial flexibility moving forward.”

Moody’s noted the rating also reflects a strong economy with high resident income.

“While the county’s tax base is largely residential, with values driven by easy commuter access to New York City, several large hospitals and higher educational institutions as well as financial services provide significant economic diversification,” Moody’s said.

The strong residential base and diversity of the county economy counterbalance negative pressures facing the commercial property sector. Also reflected in the rating is an elevated, but manageable, leverage profile that is likely to decline in the near-term.

Governance of the county is a credit driver given improved budget management over the last several years.

“Additionally, the county benefits from the presence of the Nassau Interim Finance Authority (NIFA), which provides strong oversight of the county’s budgeting and liability management,” Moody’s said.

The New York State Legislature created NIFA in 2000 to help the county emerge from a financial and debt crisis that began in the late 1990s. NIFA has powers to monitor and oversee the county’s finances.

It is comprised of a seven-member board appointed by the governor, with one member recommended by the Senate Majority Leader, one by the Assembly Speaker and one by the state Comptroller.

Moody’s said its positive outlook reflects its expectation improved budgeting and fiscal management will lead to additional financial flexibility.

“The outlook further recognizes that the county’s large and diverse economy, combined with the flexibility it maintains under its property tax structure, provide resilience to a downturn in the commercial real estate sector,” Moody’s said.

On April 17, Fitch Ratings raised the ratings on the county’s $2 billion of outstanding GO bonds, roughly $115 million in outstanding Nassau Health Care Corp. county-guaranteed bonds and the issuer default rating to A-plus from A.

The rating outlook is positive, Fitch said.

The upgrades, Fitch said, “reflect a multi-year trend of significantly improved budgeting practices and reserve balances that improve the county’s capacity to address future cyclical challenges. Fitch believes that the county is positioned to maintain its recent progress through the multi-year, structurally balanced fiscal plan through 2026 and beyond.”

Fitch noted its ratings incorporate the county’s credit strengths, which include the ability to raise revenues from a diverse and wealthy base and demonstrated ability to adjust spending, in conjunction with a moderate liability burden, and improved liquidity eliminating plans for additional cash flow borrowing.

The positive outlook reflects the rating agency’s expectation for increased revenue growth prospects over time, given the county’s ongoing economic development initiatives and potential for continued strong sales tax collections.

The GO bonds have the county’s full faith and credit and taxing power, subject to a 2011 state statute limiting property tax increases to the lesser of 2% or an inflation factor. This limit can be overridden annually by a 60% vote of the county legislature.

Nassau County is a suburb of New York City, has a wealthy tax base and a population of around 1.4 million.

Construction has been reported near the Nassau Coliseum, which includes plans for redevelopment of 70 acres for mixed-use. The proposed development potentially adds significant value to the local tax base, Fitch said.

S&P Global Ratings affirmed the county’s outstanding GOs at AA-minus and said the outlook on the credit is stable.

The county’s faith and credit — including the statutory authorization to levy ad valorem taxes on all real property within its borders, subject to the provisions of the 2011 tax levy limitation law, which imposes additional procedural requirements on a municipality’s ability to annually increase the real property tax levy — secures debt service on the 2023 bonds as well as the GO debt outstanding, S&P said.

In 2022, S&P raised the long-term rating and underlying rating on the county’s outstanding GOs to AA-minus from A-plus and said the outlook was stable.

“The rating action reflects our view of the county’s substantial improvement in available reserves, reduction in previous pension deferrals, and settlement of a labor longevity pay liability,” S&P credit analyst Nora Wittstruck said at the time.

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