Home of Hamptons Eyes Fed for Loan as Pandemic Slams Revenue

(Bloomberg) -- New York's Suffolk County, home to the Hamptons, may be the next to borrow from the Federal Reserve's little-used municipal lending facility if it can't get a better deal on Wall Street.

The county of 1.5 million people, one of the nation's wealthiest, is planning to sell short-term debt this month, potentially to the Fed's $500 billion program, according to Fitch Ratings.

Suffolk County would follow Illinois and New York's Metropolitan Transportation Authority in drawing on the Fed's emergency credit line. The Fed's backstop is intended as a last resort for governments that are facing steep penalties in the public market, where higher-rated borrowers are able to borrow at near record lows.

While the county benefits from being a second-home destination for the wealthy in Manhattan, officials have long struggled to shore up the government's finances even before the pandemic upended its budget by cutting into its sales-tax revenue.

Related: Home of the Hamptons Faces Fiscal Crisis With Sales Tax Plunging

Derek Poppe, a spokesperson for the county executive, declined to comment. County Comptroller John M. Kennedy did not respond to an emailed request for comment.

Short-term notes allow municipalities to raise cash to cover deficits. The county is planning to sell $100 million in notes in October that the Fed could backstop, according to Fitch.

Suffolk County is expected to rely on notes to cover about 20% of its spending in fiscal 2020, totaling about $615 million, according to the ratings company. The county, which has 68 golf courses and more than 50 vineyards, has been particularly affected by the pandemic because it relies on sales taxes for about 45% of its revenue, Kennedy said in a financial report released in August. Those sales-tax collections dropped by nearly 10% from January through August from a year earlier, according to state data.

The central bank's loans are especially appealing to lower-rated borrowers like Suffolk County, which is rated BBB+ by Fitch Ratings. AAA credits can sell short-term debt at near-zero rates, which has deterred municipal borrowers from using the Fed's more expensive loans.

BBB+ rated borrowers pay a spread of 275 basis points on loans from the Fed, according to the central bank's term sheet. When Suffolk County sold revenue-anticipation notes earlier this year amid a broader muni market selloff, debt maturing in 2021 priced to yield 4%.

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