N.J. TTFA Selling $600M After Appropriation Debt Downgrade

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The New Jersey Transportation Trust Fund Authority Wednesday will issue $600 million of state appropriation-backed debt after Moody’s Investors Service downgraded such bonds last week to A1 from Aa3.

Moody’s last week lowered New Jersey’s general obligation credit to Aa3 from Aa2 and downgraded its appropriation debt to A1 from Aa3 due to the state’s weakened financial position, slow economic recovery, and no plan to replenish the state’s fund balances.

Moody’s revised the GO and appropriation-credit’s outlook to stable from negative.

Market participants do not anticipate the one-notch drop in the credit ratings will hurt the TTFA bond deal as investors already were bidding the trust’s bonds at the lower level.

“From our perspective, the market had this credit downgraded for quite a few months,” said Michael Pietronico, chief executive officer at Miller Tabak Asset Management. “And if anything, it’s probably a relief that the bonds have actually been downgraded and can make it an easier job to market for underwriters — being that there’s a stable environment to the rating now.”

New Jersey had $2.6 billion of outstanding GO debt as of June 30, according to the state Treasury Department. Its combined outstanding appropriation and moral debt is $32.9 billion, Moody’s said in its report.

Alan Schankel, director of fixed-income research at Janney Montgomery Scott, said investors have already been demanding more yield for New Jersey debt.

The credit downgrade “has largely been anticipated and discounted,” he said. “New Jersey GO spreads have been wider than comparably rated states for quite a while.”

Standard & Poor’s and Fitch Ratings rate the TTFA A-plus and AA-minus, respectively.

Both Pietronico and Schankel expect the lack of supply in the municipal market will help the transaction garner investor interest.

Bond issuance from January though April was down 53% compared to the same period in 2010, according to data from Thomson Reuters.

In addition, the deal includes short, mid-term, and long-term debt. The Series 2011A bonds include serial maturities from 2013 through 2031, according to the preliminary official statement. The deal also offers two term bonds, with $107.4 million and $217.6 million of debt maturing in 2035 and 2041, respectively.

“The maturity structure works in the deal’s favor,” Pietronico said. “There’s a little bit there for everybody.”

JPMorgan will price the fixed-rate revenue bonds on Wednesday following a one-day retail order period. McCarter & English, LLP is bond counsel.

New Jersey Treasury Department spokesman Andrew Pratt said officials anticipate a wide variety of buyers will participate in the sale.

“We expect a broad range of retail and institutional investors,” Pratt wrote in an e-mail. “We expect no problems selling our debt at acceptable rates.”

This is the TTFA’s final borrowing under its current financing plan. Dedicated revenues come from the state’s 10.5-cent gas tax, and taxes on petroleum products and automobile sales, according to Moody’s.

After this transaction, all of the trust’s $895 million annual allocation will be needed to pay principal and interest costs on existing debt.

To support future TTFA borrowing, Gov. Chris Christie proposes directing an additional $140 million of gas, motor fuel, and new vehicle sales taxes to the trust. Those revenues currently flow into the general fund.

“The $140 million of additional dedicated revenues are currently supporting general fund operations, therefore, while this transfer will provide necessary transportation funding, it will also further pressure the general fund,” Moody’s said.

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Transportation industry New Jersey
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