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New Jersey Utility May Skirt Default

The Camden County, N.J. , Pollution Control Financing Authority will tap into various dedicated funds to avoid defaulting on $26.1 million of incinerator debt due Dec. 1.

The authority proposed using monies from its other accounts to meet the final, balloon payment due next week on debt it sold in 1991 after New Jersey officials said a state bailout would not be forthcoming and urged the PCFA to find a way to make good on its obligation.

New Jersey’s Local Finance Board Tuesday told the authority that it would have no objection to the PCFA tapping into dedicated capital construction funds to pay debt service, as long as it repaid those funds over time, said Tom Neff, director of the Division of Local Government Services and chairman of the LFB. Authority officials are now working on executing that plan, which includes obtaining approvals from different state departments to be able to access the dedicated accounts.

“They’re not over every hurdle yet, but they’re committed to working through the holiday weekend and every day until they have this thing done,” Neff said. “It’s not a done deal, but they’re clearly moving in the right direction to make their payment and not be the first default in 80 years in New Jersey.”

A debt-service reserve fund for the bonds is empty and the debt does not carry bond insurance. There is no government entity placing its guarantee behind the bonds.

William Tambussi, partner at Brown and Connery LLP, the authority’s solicitor, said the PCFA aims to make the Dec. 1 payment if it can legally access dedicated funds. 

“We have six days. We’re under the gun, everybody’s knows we’re under the gun, and we’re trying to work through this in that period of time,” Tambussi said.

The Dec. 1 payment includes $24.2 million of principal and $1.8 million of interest, according to the official statement for the Series 1991A bonds. The interest rate on the bonds is 7.5%. The authority is about $18 million short of the full $26.1 million. It has $5 million or $6 million of funds available for debt repayment, according to Neff. The state earlier this year allocated $2 million for the bonds, out of a total of $16 million it used to help paydown sold waste debt throughout the state.

Fitch Ratings rates the Series 1991A bonds C. Moody’s Investors Service assigns a Caa1. The outlook is developing. Standard & Poor’s on Nov. 12 dropped the incinerator bonds to CC from CCC and placed the debt on credit watch with negative implications.

Since 1999, the state has given the authority $150 million to help it meet debt service on these bonds. Once lawmakers approved the fiscal 2011 budget, and the $2 million allocation, the authority began discussions with the state Treasury Department regarding the $26.1 million payment, Tambussi said.

Investors of the Series 1991A bonds include Nuveen Asset Management Inc., which held $10.7 million of the bonds as of Oct. 31, according to Bloomberg LP. Mackay Shields Financial Corp. and BlackRock Investment Management LLC held $800,000 and $340,000, respectively, as of Sept. 30 and Aug. 31.

When the Camden incinerator began operations in 1991, the state mandated that an area’s solid waste must be disposed of within that area. A Supreme Court decision in 1994 and subsequent rulings prohibited that policy, known as flow control, thereby allowing cities and towns to take their garbage elsewhere, if they choose.

The authority then lowered its tipping fees to compete with other facilities. While that retains Camden customers, it forces the PCFA to rely on the state to help meet debt-service costs.

“Despite the lack of a monetary default, the authority’s rating reflects the authority’s own inability to meet its pledges and covenants, due to its fundamental lack of competitiveness and its failure to achieve a workable plan to restore both operating stability and financial balance,” Standard & Poor’s wrote.

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