Loop Capital had just a workweek to pore through volumes of data. “He [Liu] gave us all a series of bonds. He gave us all the interest rate assumptions and he gave us five days,” recalls Reynolds. “We got it on Monday and by Friday we had to come back with a structure that was most advantageous for New York City to pursue for a bond deal that would result in the most savings for New York City taxpayers.”
The race was on, with a multitude of bankers focusing on how to distinguish their firms and win the appointment. To be in contention, firms had to have mastered New York state local finance law constraints and arcane tax law concepts involving cascading transferred proceeds, universal cap calculations, mixed escrow rules, current refunding transition rules, and other criteria that made such a transaction so complex. The stakes were high. “To lead a senior-managed issue for the City of New York is one of the industry’s most prized assignments,” asserts Alex Rorke, managing director and head of public finance for Loop Capital. “There were many late nights across Wall Street.”
Led by Jang, a vice president in New York who specializes in quantitative analysis, the team developed a proprietary linear optimization model for selecting bonds that would provide the greatest savings while meeting all the city’s guidelines. Simply put, it determines which existing debt should be repurchased and the terms of the new bonds that would be issued to finance that repurchase.
The eligible refunding candidates consisted of 170 prior series of bonds totaling more than $40 billion with varying terms and maturity dates. One of the outstanding series to be refunded under Jang’s model was $18.98 million fiscal 2001, Series D bonds. It had a coupon (interest rate) of 5.125% and matures Aug. 1, 2019. The bond from the new issue that refunded it yields 2.93%. Replacing the high interest rate debt with the lower interest rate provided a present value savings of $2.9 million.
Breaking the Glass Ceiling on Wall Street
All told, Loop Capital’s proposal would reduce city taxpayers’ interest burden by $84 million. The Comptroller’s Office was so happy with the result, it increased the initial $800 million bond sale to $962.5 million. Reynolds was at Chicago’s Midway Airport when he received the news that his firm landed the deal. “It was probably one of the most exciting days since I’ve been in business,” he recalls. “I have a list of priorities when I begin the year. They were in the top 10 of my focused priority list. It was very, very exciting.”
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