Bloomberg News

World Trade Center Bond Yields Drop as Investors Seek Safety

November 02, 2011

(Updates with Silverstein comment in 10th paragraph.)

Nov. 1 (Bloomberg) -- Developer Larry Silverstein, buoyed by investor demand for the safest assets, sold $1.23 billion of tax-exempt bonds to help finance construction of 4 World Trade Center at lower yields than forecast.

Goldman Sachs Group Inc., which managed the sale, priced $514 million of bonds maturing in November 2051, to yield 5.05 percent, or 0.05 percentage point lower than indications earlier in the day, according to data compiled by Bloomberg. Yields on debt maturing in 2031 were lowered 0.1 percentage point to 4.85 percent.

The sale came as Treasuries gained, extending the biggest rally in 30-year bonds since March 2009, on concern that the European rescue plan will unravel. Thirty-year muni yields fell the most in almost a week.

“When you see a rally in a market and yields are declining very quickly, it makes people want to jump in,” said Kathy Bramlage, a director in New York at HighTower Advisors’ Treasury Partners Unit, which manages $7 billion. “The investor is definitely looking to lock in better rates and 5 percent is very enticing.”

Demand for the World Trade Center issue outpaced supply by 8-to-1 in the 20-year maturity and 3.5-to-1 in the 2051 maturity said Bramlage, who earlier today said Silverstein might have to raise yields to attract investors. She said she had seen the 2051 maturity marketed at 5.15 percent, and said it might have to rise as high as 5.25 percent.

Michael DuVally, a Goldman spokesman in New York, declined to comment.

Treasuries Rally

Yields on 30-year Treasuries dropped 9 basis points, or 0.09 percentage point, to 3.04 percent at 1:49 p.m. New York time, according to Bloomberg Bond Trader prices. The yield fell as much as 19 basis points as investors sought the safety of government securities. On top-rated 30-year muni bonds, yields fell 7 basis points to 3.59 percent, according to Bloomberg Valuation index data.

The debt was issued through the New York Liberty Development Corp., created to sell tax-exempt debt as part of the Liberty Bond Program, part of a federal economic package to help New York City recover from the Sept. 11 terrorist attacks.

The issue for 4 World Trade Center, which will become the headquarters of the Port Authority of New York and New Jersey, was delayed almost a year because of market turmoil and disputes with bondholders. The building will reach 64 stories, according to the preliminary official statement.

‘Tremendous Momentum’

“Today’s successful pricing of $1.25 billion in Liberty Bonds assures the continued construction of 4 WTC through completion in 2013,” Silverstein said in a statement. “The investment community’s intense demand for these bonds is more proof of the tremendous momentum of the World Trade Center rebuilding effort.”

The debt, secured by payments from the Port Authority and New York City, is the first time the transportation agency and the city have combined to back bonds, said Marvin Markus, the Goldman Sachs investment banker who structured the sale. New York City is leasing 15 floors in the tower.

Like the World Trade Center development itself, the bond issue for 4 World Trade has been subject to delays and disputes.

Last December, Silverstein and the Port Authority, postponed the sale as a flood of new issues spurred by the Build America Bond program, coupled with investor fears of mass defaults, sent yield on municipal bonds to a 16-month high.

Consolidated Bonds

In April, the Port Authority and Silverstein tried to issue the bonds again. This time, the deal was derailed by Fidelity Investments, the second-largest mutual fund company, which held some of the Port Authority’s $13.3 billion consolidated bonds. The senior bonds are backed by revenue from the agency’s three airports, two Hudson River tunnels, four bridges and six marine cargo terminals.

Senior bondholders didn’t want debt service for 4 World Trade Center to be paid with revenue pledged for the consolidated bonds, according to a resolution from a Port Authority board meeting on Oct. 20, 2010.

To avoid a protracted dispute and continue construction, the Port Authority and Silverstein restructured the deal, the resolution said. Governor Andrew Cuomo appointed his top economic adviser, Patrick Foye, to hammer out a deal with bondholders earlier this year, according to Silverstein’s statement. Foye was named Port Authority executive director by Cuomo last month.

Foye Term

“This successful effort is a terrific start to Pat Foye’s leadership at the Port Authority,” Silverstein said in his statement.

Under the new structure, the Port Authority must first pay principal and interest on its consolidated bonds, according to the resolution. The agency will pay its portion of debt service from the consolidated bond reserve, which totaled $939 million as of Aug. 31, according to Standard & Poor’s.

Standard and Poor’s assigned its A+ rating to the 4 World Trade Center debt, one level below the Port Authority’s consolidated bonds.

--Editors: Pete Young, Mark Schoifet

To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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