New York mayor’s indictment may raise investor questions

New York Mayor Eric Adams was indicted on federal bribery, campaign finance and conspiracy charges, the U.S. Attorney’s Office announced Thursday.

The charges came in a period of heavy borrowing for the city, and how the case develops could influence investor interest, analysts say.

“I think people certainly are going to have questions about the alleged corruption and fraud,” said John Hallacy of John Hallacy Consulting. “How deep does it go?”

The mayor has said he will not resign and plans to defend himself in a trial. 

Investors will know that New York City is “not going away,” Hallacy said, and the mayor is not particularly involved with bond financing. Still, questions of leadership and the scope of the charges could complicate investment in the city. 

“A particular credit isn’t always driven by one individual, but it is still early to assess any actual impact,” said Kim Olsan, a senior fixed income portfolio manager at NewSquare capital.

“Investors are a pretty skeptical lot to begin with, and I don’t know that they would be surprised,” Hallacy said. “I also don’t know necessarily that that would be a single reason to sell the bonds. Although anybody who owns them, particularly in size, will be called by their boards or respective overseers about what should be done, because it’s in the news.”

The city may have to file new disclosure documents for some of its deals, Hallacy said. 

The deal with perhaps the most delicate timing is a $1.5 billion New York City general obligation bond sale that is scheduled to price Oct. 9, according to an online investor presentation, which notes that the timeline is subject to change. 

“All recent and upcoming bond issuances and pricings are proceeding on schedule,” the mayor’s Office of Management and Budget said in a statement Thursday afternoon. “We will keep working on behalf of New Yorkers to run the bond finance program that helps us build and maintain our city’s world class infrastructure.”

$820 million of those taxable bonds will be social bonds dedicated to affordable housing, one of Adams’s signature priorities. The press release announcing the deal quoted Adams alongside city Comptroller Brad Lander, who is campaigning to unseat Adams in the 2025 election and on Thursday called for the mayor to resign.

The mayor’s OMB and the comptroller’s office share the responsibility for issuing city bonds.

The deal is also taxable, so its market lies beyond the traditional market for city tax-exempts, to different institutional, out-of-state and international investors who are reading dramatic headlines in a story with worldwide reach. 

BofA Securities will run the books and Blaylock Van is joint lead manager, according to the presentation; BofA declined to comment and Blaylock Van did not respond as of publication time. 

The indictment landed with another city deal in the period between pricing and closing.

The New York City Municipal Water Finance Authority priced $887 million of bonds and $102 million of refunding bonds this week in a deal scheduled to close Wednesday. 

New York City is rated Aa2 by Moody’s Investors Service, AA by Fitch Ratings and S&P Global Ratings, and AA-plus by Kroll Bond Rating Agency. The city has $40.9 billion of GO debt outstanding, according J.P. Morgan strategists, led by Peter DeGroot. 

“The impact of this development on the city’s credit, if any, is unclear at this time,” J.P. Morgan’s strategists wrote. “However, we do note that S&P’s local government methodology states it would consider a downward adjustment to its management assessment in the event of ‘political gridlock or ongoing turnover in essential positions adversely affecting operations’ and/or ‘presence of unusual financial or legal challenges, such as fraud or other criminal activity.'” 

New York Gov. Kathy Hochul has the authority to remove the mayor, according to The City, an online news publication that has extensively covered the investigations that circled Adams until Thursday’s indictment. The city charter also provides for an “inability committee” of city officials that can remove a mayor, The City reported.

If Adams resigns or is removed, the city’s elected public advocate, Jumaane Williams, would step in as mayor until a special election is held.

“Mayor Adams, like all New Yorkers, deserves due process, the presumption of innocence, and his day in court. However, it is clear that defending himself against serious federal charges will require a significant amount of the time and attention needed to govern this great city,” Lander said in a statement Wednesday night. 

“The longer the situation festers, the worse it will be,” Hallacy said. “If it comes to a head in some kind of resolution faster, then I think it’ll be less of an issue. If it drags on, it becomes more of an issue.”

Block trading of New York City GOs in the secondary market Thursday did not show any penalties. Some were trading at lower levels than recent trading.

City GOs with a 5% coupon maturing in 2025 traded at 2.75% versus 2.80% Wednesday. New York City Transitional Finance Authority future tax secured bonds with a 5% coupon maturing in 2026 traded in blocks at 2.36% versus 2.40%-2.42% Tuesday and 2.52%-2.48% original yields on Sept. 12. New York City GOs with a 5% coupon maturing in 2036 traded at 3.00%-3.01% and GOs with a 5% coupon maturing in 2038 traded at 3.15% versus 3.13%-3.11% on Sept. 12.