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Fitch Rates New York City $1.306B 2008 Subseries J-3 to J-14 Adj. Rate GOs.

NEW YORK -- Fitch Ratings has assigned ratings to the City of New York's $1,305,790,000 general obligation, fiscal 2008 series J, adjustable rate bonds, subseries J-3 through subseries J-14, as described below. The 'AA-' long-term ratings assigned to subseries J-4, J-5, J-9, J-10, J-11, J-12, J-13 and J-14 are based on the rating assigned by Fitch to the City of New York's general obligation bonds. The city's long-term 'AA-' rating is based on the breadth of the economy, high income levels, strong economic performance and financial operations, and exceptional budget management and controls, including a consistently demonstrated ability and resolve to close budget gaps. The short-term 'F1+' ratings assigned to the aforementioned subseries are based on the standby bond purchase agreements (SBPAs) provided by the banks identified below:

--$100 million subseries J-4, SBPA provided by Bank of America, N.A.;

--$101.405 million subseries J-5, SBPA provided by Dexia Credit Local, New York Branch;

--$100 million subseries J-9, SBPA provided by The Bank of Nova Scotia, New York Agency;

--$100 million subseries J-10, SBPA provided by BNP Paribas, San Francisco Branch;

--$100 million subseries J-11, SBPA provided by KBC Bank N.V., New York Branch;

--$103.16 million taxable subseries J-12, SBPA provided by Dexia Credit Local, New York Branch;

--$140 million taxable subseries J-13, SBPA provided by Lloyds TSB Bank, New York Branch; and

--$100 million taxable subseries J-14, SBPA provided by Lloyds TSB Bank, New York Branch.

The long-term ratings assigned to subseries J-3, J-6, J-7 and J-8 are based jointly on the long-term ratings of the banks providing the irrevocable standby letters of credit (LOCs) and the 'AA-' long-term rating assigned to the city, all as described below. The 'F1+' short-term ratings are based solely on the LOCs.

--$150 million subseries J-3 rated 'AA+/F1+' with the LOC provided by Allied Irish Banks, p.l.c., New York Branch (rated 'AA-/F1+');

--$111.225 million subseries J-6 rated 'AA+/F1+' with the LOC provided by Landesbank Hessen-Thuringen Girozentrale, New York Branch (rated 'A+/F1+');

--$100 million subseries J-7 rated 'AA+/F1+' with the LOC provided by Landesbank Baden-Wurttemberg, New York Branch (LBBW) (rated 'A+/F1+'); and

--$100 million subseries J-8 rated 'AA+/F1+' with the LOC provided by LBBW.

The long-term ratings assigned to subseries J-3, J-6, J-7 and J-8 are based on Fitch's methodology that considers the joint probability of the failure of both a municipal issuer and a bank LOC provider. The methodology results in a rating that is two notches higher than the stronger of the two credits if the following conditions are met: both entities have a rating of 'A' or higher; the transaction is structured such that payments from both the municipal issuer and the bank are in the flow of funds and both entities would have to fail to perform before the bonds defaulted; and the credit of the bank and the municipality have a low degree of correlation. Note that because both entities must be rated 'A' or higher for this methodology to be applied, if the city or one of the banks listed above were downgraded to 'A-' or lower, the long-term rating assigned to the bonds would drop to that of the higher rated entity.

Pursuant to the LOCs and the SBPAs, the banks are obligated to make payments of purchase price for tendered bonds, including, with respect to LOC-backed bonds, bonds that are required to be tendered upon any failure by the city to provide funds to The Bank of New York, as fiscal agent, for the payment of principal and interest on the bonds on a payment date. The ratings for the LOC-backed bonds will expire on the earliest of: the stated expiration date of each LOC unless such date is extended; any prior termination of the LOCs; and defeasance of the bonds. The stated expiration date for the LOCs is April 1, 2013, unless extended. The short-term ratings for the subseries supported by the SBPAs will expire on the earlier of the stated expiration date unless extended, or any prior termination of the SBPAs. April 1, 2015 is the stated expiration date for the SBPAs for the subseries J-5 and J-12 bonds. The expiration date for the SBPAs for the subseries J-9, J-10, J-11, J-13 and J-14 bonds is April 1, 2011; and the subseries J-4 SBPA expires on April 1, 2013. The LOCs and SBPAs provide full coverage of the principal amount of purchase price plus an amount equal to 35 days of interest at a maximum rate of 9%, or 14% with respect to the taxable subseries, based on a 365-day year. The remarketing agents for the bonds are: J.P. Morgan Securities Inc. for the subseries J-3 bonds; Banc of America Securities LLC for the subseries J-4 bonds; Morgan Stanley & Co. Incorporated for the subseries J-5 bonds; DEPFA First Albany Securities LLC for the subseries J-6 bonds; Citigroup Global Markets Inc. for the subseries J-7 and J-9 bonds; UBS Securities LLC for the subseries J-8 and J-13 bonds; Goldman, Sachs & Co. for the subseries J-10 and J-11 bonds; and Merrill Lynch, Pierce, Fenner & Smith Incorporated for the subseries J-12 and J-14 bonds. The bonds are expected to be delivered April 1, 2008.

Subseries J-3, J-4, J-5, J-6 and J-8 bonds initially bear interest in the daily rate mode. The remaining subseries will bear interest in the weekly rate mode. The bonds may bear interest in the daily, weekly, commercial paper, term, auction or fixed interest rate modes. While the bonds bear interest in the daily and weekly rate modes, interest is payable on the first business day of each month, commencing May 1, 2008. Holders of bonds bearing interest at a daily or weekly rate mode may tender their bonds for purchase with prior notice. The bonds of each series are subject to mandatory tender: on interest mode conversion dates; on the business day following the end of each commercial paper or term interest rate period; upon the expiration or termination of the LOC or SBPA relating to a subseries of bonds; upon the substitution of the LOC or SBPA relating to a subseries of bonds if the substitution will cause a reduction or withdrawal of the rating assigned to such bonds; and with respect to the LOC-backed subseries, upon the failure by the city to provide funds to the fiscal agent for payment on principal and interest on the bonds on a payment date. The bonds are also subject to optional and mandatory sinking fund redemption.

The city's long-term 'AA-' rating is based on the breadth of the economy, high income levels, strong economic performance and financial operations, and exceptional budget management and controls, including a consistently demonstrated ability and resolve to close budget gaps. Offsetting factors include high and rising levels of debt and economic and revenue vulnerability to the cyclical securities industry, now under pressure, and to the real estate market.

With the continuation of several years of strong financial performance, primarily attributable to the robust performance of Wall Street and real estate, the city adopted a budget and financial plan in June 2007 that was characterized by prudent fiscal management and conservative revenue forecasting. The city has subsequently modified the June financial plan, most recently in January, to reflect negative financial market developments. Property taxes are projected to show steady base growth, but personal income tax, sales tax, business tax and real estate transaction tax growth are expected to slow considerably, or decline from recently higher rates of growth. Wall Street profits are estimated to have dropped from $20.9 billion in calendar 2006 to $2.8 billion in 2007, and are expected to rise to $9.2 billion in 2008. The bonus pool is estimated to have declined from $34.9 billion in 2006 to $31.2 billion in 2007, and is expected to fall further to $23.1 billion in 2008. Fitch believes that these forecasts are prudent given recent events, although the extent of actual securities industry losses and projected real estate declines remain an uncertainty.

Based on current forecasts of spending and expenditures, the city will end the current fiscal year with $1.6 billion more funds available to offset the fiscal 2009 gap than originally expected, for a total surplus roll of $4.1 billion. The January preliminary budget proposal for fiscal 2009 is balanced even after applying $350 million to offset the fiscal 2010 gap (currently estimated at $4.2 billion after applying the offset). The plan extends a 7% property tax rate cut, although the mayor has stated that this may be changed based on the direction of the economy and the city's success in achieving its labor savings and intergovernmental revenue goals. Since then, the mayor called on agencies to identify an additional 3% in cuts for fiscal 2009, citing decreased expectations of state aid. The city's budget monitors are anticipating that the city's budget should remain in balance through fiscal 2009, although they cite a variety of risks to budgetary balance, including a sharper downturn in Wall Street-related revenues, lower state aid and higher salary and fringe benefit assumptions.

New York possesses inherent strength in the scope of its unique economy and its singular identity as a major tourist destination and an international center for numerous industries. The city's personal income per capita is 121% of the national average. Nonfarm employment rose 2.1% in 2007, and February 2008 employment rose 1.3%. The city forecasts employment growth slowing going forward, to just 0.1% in 2008 and 0.4% in 2009. The unemployment rate as of February 2008 was 4.8%, matching the U.S. level, although higher than the 4.1% recorded in February 2007. New York's economic dependence on Wall Street remains, with financial activities accounting for about 12.5% of jobs and 30% of earnings.

Debt levels remain high, with net tax-supported debt of about $53 billion, 15.3% of 2005 personal income and $6,364 per capita. Pensions are well funded, and the city has created a trust to begin to offset its $57.8 billion retiree health care benefits (OPEB) liability (as of June 30, 2007).

Bond proceeds will be used for the city's capital purposes.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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