City sells tax receivables.

The City of New York is $208 million richer after completing a deal with Chemical Securities for the transfer of $1.5 billion in property tax receivables. This money has already been counted in the 1994 fiscal year budget and another $215 million is slated to be received for the 1995 fiscal year.

What the transaction does is speed up the pace of the collections for money that would eventually be received by the city by delinquent taxpayers. The interest owed by the taxpayers is being counted towards the money that chemical will collect until noteholders are paid off.

The sale was made through a tax collections trust set up by Chemical securities, a subsidiary of Chemical Bank. The purchase was paid for through the issuance of notes underwritten by the bank. Any monies collected over the $208 million plus a 5.45 percent coupon priced to yield 5.54 percent will revert back to New York City, and the remaining receivables could technically be sold again - thus the next $215 million.

The $208 million was a price "honed" after examining the finances of the deal that was originally also scheduled to yield the city $215 million, explained Susan Voorhees, a vice president at Chemical Securities.

Michael Malter, managing director of Chemical Securities, said "The idea was conceived by our managing director, Tom Becker, who has responsibility for asset-backed and muni business. We approached the Dinkins administration with the idea to use it as a financing vehicle."

The scheme was tossed about by then Deputy Mayor Barry F. Sullivan, who now heads the New York City partnership and chamber of commerce, and was well received by fiscal monitors.

Working together, the city and Chemical came up with a draft of the enabling legislation which was passed in Albany in 1993 and that allowed the city to go forward with the concept. "It was a negotiated offering and not a competitive bid," added Malter. "We were designated by the city.

The deal includes all of the delinquent tax receivables that existed as of May 31, 1994 and go back for nearly ten years.

"Even though we have $1.5 billion defined," explained Malter, "it is really the receivables from the most recent years that are the most viable that we can use to pay down the note holders"

The historical collection rate for one year is 55 percent, Voorhees noted.

Malter says that while the city intends to repeat the transaction, it is not yet clear if it would be identical in structure.

Voorhees said the city is the servicer and transfers the collections to the trust. The city is not getting a fee for collecting the money, she noted, because no one else could come in and service this kind of collection.

The transaction closed on Wednesday, June 22.

"We're delighted to have been given opportunity to be working with the City of New York on the first public offering of an asset-backed security for a municipal seller of receivables," said Malter. "This has broader applications for both the U.S. and abroad.

Asset-backed technology has been applied to a wide array of assets through corporate industries, including use by automakers and sellers of credit card receivables such as Citibank.

"The breaking open of use of asset-backed technology in connection with a municipality is a fairly significant step in the asset-backed market," added Malter. "There is no better municipality than New York to do the first one. I would anticipate that you will see other municipal issuers doing similar transactions."