New Jersey will offer in the next few weeks nearly $1 billion of refunding and new-money debt backed by the state.
The New Jersey Transportation Trust Fund Authority today will complete a $350 million deal that officials postponed last month after pricing for retail investors on April 27. The transaction now includes $270 million of taxable Build America Bonds and $82.4 million of tax-exempt capital appreciation bonds.
Nancy Feldman, the state's public finance director, said the BABs should generate a lower borrowing cost for the authority and that the authority needed to include a portion of CABs, which are not eligible for the BAB program. The additional time it took let the state examine BABs, which are taxable securities that offer issuers a 35% federal subsidy on interest costs or a 35% tax credit to investors.
"We evaluated BABs," Feldman said. "They started being issued by the [New Jersey Turnpike Authority] and California. And now that we have the information that we need, we've evaluated it, and we've determined that they could be a significantly better cost of capital."
Merrill Lynch & Co. is senior manager on the deal. McManimon & Scotland LLC is bond counsel, and A.C. Advisory Inc. is the authority's financial adviser.
The entire $270 million of BABs will mature in 2039, and the Series 2009A CABs offer serial maturities from 2032 to 2039, excluding 2035 and 2037, according to the preliminary official statement. The bond proceeds will help finance roadway and bridge improvements throughout the state.
A Series 2009AA $186.8 million school facilities construction refunding sale is to follow the transportation issue. The New Jersey Economic Development Authority is the conduit issuer for school construction bonds, which, like the transportation authority bonds, are subject to appropriation.
Morgan Stanley tomorrow will price the refunding debt. Wolff & Samson PC is bond counsel, and P.G. Corbin & Co. is the financial adviser.
The Series 2009AA bonds include serial maturities in 2018 and 2020 along with two term maturities in 2028 and 2033, according to the POS. Except for outstanding variable-rate bonds that are hedged with a swap, officials are reviewing all the authority's prior school construction bonds for potential refunding candidates.
The transaction should generate $55 million of savings for the state in fiscal 2009, which ends June 30, and more than $100 million of savings in fiscal 2010, according to Feldman.
In addition, officials anticipate competitively pricing $250 million of school construction notes during the second week of June. This would be the first note sale for the school facility program, and the Treasury Department plans to set the interest rate before pricing, with the rate not to exceed 6%. Officials have used this methodology with its tax and revenue anticipation notes.
"It is felt that this method for conducting a competitive sale of a series of 2009 notes will broaden the base of the potential bidders, resulting in a more competitive bid and a lower overall borrowing cost," according to Economic Development Authority documents.
The authority also plans to issue $200 million of new-money school construction bonds after the fiscal 2010 budget is approved. Those bonds were originally set to price in early May.
Meantime, the authority recently entered into a fixed-to-floating-rate swap with Deutsche Bank AG, with the NJEDA paying 62% of one-month Libor plus 40 basis points and receiving a fixed rate of 1.11%, according to the POS. This swap, which lasts two years, will help offset a variable-to-fixed-rate swap with Royal Bank of Canada that began on May 1. In that agreement, the authority pays a fixed rate of 4.51% and receives 62% of one-month Libor plus 40 basis points.
"Taken together, the two swap agreements will net to a fixed cost of 3.3934% for the next two years," according to the NJEDA documents.
The state will also head to market next week with about $225 million of general obligation refinancing bonds to help generate debt service savings in fiscal 2010. Officials expect to offer the refinancing bonds through competitive bid.
Along with the bond sales mentioned above, Treasury officials are also reviewing proposals for a potential $2 billion, short-term line of credit to help meet cash-flow needs.
New Jersey carries Aa3 and AA ratings from Moody's Investors Service and Standard & Poor's. Fitch Ratings assigns its AA-minus rating to the credit. Bonds backed by the state's appropriation pledge carry ratings one notch below New Jersey's GO rating.