The triple-A rated New Jersey Environmental Infrastructure Trust Wednesday will sell $130 million of tax-exempt bonds via competitive bid to help finance clean water projects throughout the state.
The NJEIT provides low-cost financing for infrastructure projects that improve ground and surface water resources, and create safe drinking water facilities. Since its creation in 1987, it has provided more than $4.3 billion in loans to local governments.
In fiscal 2010 the trust is managing its largest program to date through bond issuance and zero-interest loans — $727 million for infrastructure development. That compares to the previous record of $520 million of capital projects the program supported in 2007.
Additional support this year comes from $240 million of federal stimulus funds from the American Recovery and Reinvestment Act that needed to be committed to qualified projects by Feb. 17. The additional federal funds will reduce reliance on bond proceeds, although the amount of borrowing will be similar to 2007 levels.
The NJEIT plans to sell nearly $198 million of new-money debt this year, including Wednesday’s $130 million transaction and $68 million of bonds it sold in December. The trust issued $216 million of new-money debt in 2007.
Acting executive director Maryclaire D’Andrea said the larger program involved approving more shovel-ready projects, which are a stipulation for receiving the federal stimulus funds. That resulted in the trust’s typical annual issuance expected in the fall of last year to be postponed to winter 2010, although it did offer a smaller sale in December to generate needed funds. In the past, the trust has approved projects that are a few months away from beginning construction.
Incorporating taxable Build America Bonds would have postponed the bond sale further as the NJEIT has yet to sell BABs and would need to educate its borrowers about the program. D’Andrea said the trust will consider BABs when it again heads to market in November with a potential $130 million to $150 million transaction.
“We did consider [BABs] a while ago but then we realized it was a little late in the process,” D’Andrea said. “It would have been too much to inform our borrowers of all the changes and such, but we are still entertaining the idea for November.”
With the taxable BAB program, issuers receive a 35% subsidy on interest costs from the federal government.
Typically, bond proceeds comprise 40% to 50% of the program’s financing. This year, 25% of the $727 million program will be financed with bonds. The federal stimulus funds enlarged the NJEIT’s program, with more local governments submitting projects than in prior years. Wednesday’s sale will include 97 borrowers among 116 projects compared to 50 or 60 local governments borrowing through the Trust’s bond program in earlier years.
Borrowers typically receive financing comprised of an interest-bearing loan financed through bond proceeds known as a trust loan, and a zero-interest loan financed through the state Department of Environmental Protection and federal funds known as a fund loan.
The zero-interest loan accounts for 50% to 75% of the obligation. The new federal stimulus dollars will offer borrowers a 50% principal forgiveness on the zero-interest fund loans, D’Andrea said. Officials project proceeds of the bond sale will create 12,500 full-time construction jobs.
There is no debt service reserve fund for the Series 2010A bonds or for debt sold in 2007 through 2009. Repayments on both trust loans and fund loans provide sufficient coverage, according to the rating agencies.
“The combination of trust and fund loan repayments covers debt service on the coverage-receiving bonds under a variety of default scenarios, without use of the debt service reserve funds,” according to a Standard & Poor’s report on the credit. “None of the coverage-receiving bonds are considered parity, as each is first payable from within the respective pool of borrowers; however, the master trust structure effectively provides overcollateralization for those bonds designated as coverage-receiving. Since the amount of coverage-generating bonds is currently greater than coverage-receiving bonds, the overcollateralization currently provides good coverage, in our opinion.”
The fixed-rate Series 2010A bonds will offer serial maturities from 2011 through 2029, according to the preliminary official statement. The bonds are secured with general obligation and special obligation pledges of the cities, towns, and local authorities who receive the bond proceeds and repay the Trust in loan repayments annually.
McCarter & English LLP is bond counsel for the Series 2010A bonds. Public Financial Management, Inc. is the NJEIT’s financial adviser. The bonds will not carry insurance.
Fitch Ratings, Standard & Poor’s and Moody’s Investors Service all rate the trust triple-A with a stable outlook. The NJEIT has approximately $1.3 billion of outstanding debt.
Michael Pietronico, chief executive officer at Miller Tabak Asset Management, said the strong credit rating should serve the issuer well when it heads to market on Wednesday.
“This particular credit is very highly rated and thought of in the market, so I see this particular loan getting a very good reception by the market,” he said. “New Jersey, for the most part, has been very thin for high-quality supply so there will be demand for this loan and it should do very well.”
The NJEIT last sold debt on Dec. 2 with yields on $61.9 million of Series 2009A tax-exempt bonds ranging from 0.65% with a 2% coupon on debt maturing in 2011 to 4.15% with a 4% coupon for bonds maturing in 2029.
Last month, former NJEIT executive director Dennis Hart left after five years to take a job in the private sector. He is now managing director at the Construction Industry Advancement Program of New Jersey, a nonprofit that promotes the construction industry. D’Andrea said NJEIT’s board will select a permanent executive director after the closing of the Series 2010A bonds.
