The New Jersey Environmental Infrastructure Trust, a state instrumentality that provides low-cost financing for environmental infrastructure projects, is scheduled to offer around $200 million of triple-A rated refunding bonds on Tuesday.
Bond proceeds will refund outstanding bonds that were initially issued to finance water and wastewater system projects in New Jersey.
The bonds will be sold competitively in three series.
The first series of about $198 million refunding bonds will mature from 2013 through 2026. The other two series — $1.3 million maturing from 2013 through 2021 and $9 million maturing from 2013 through 2023 — will both be federally taxable.
The bonds are not subject to early redemption.
Various trust estates established under a master program trust agreement secure the debt service. Each trust estate relates to a specific bond issue and primarily consists of loan repayments, interceptable state aid, and debt service reserves used to cure defaults.
The NJEIT has been actively involved with sewage water infrastructure needs in the state since 1986. Currently, the trust has about $1.3 billion of master program trust bonds outstanding.
Proceeds from previously issued bonds have been loaned to borrowers including the Atlantic County Utilities Authority, Montclair State University, the city of Newark, and the New Jersey Water Supply Authority.
Citing a high debt service coverage and low risk of default, credit rating agencies have assigned the bonds top ratings and stable outlooks.
“The rating is based on the large and diverse pool of 321 borrowers, a substantial overcollateralization of loans (including trust and fund loans) to bonds which allows for a high program default tolerance of 38%,” Moody’s Investors Service said in a report.
The overcollateralization of loans to bonds provides strong cash flow coverage of bond debt service and is projected to maintain coverage of over 1.82 times for the life of the bonds, analysts said.
Standard & Poor’s also assigned a triple-A rating based on extremely strong enterprise and financial risk profiles.
“The combination of the loss coverage score, historical operating performance, and management policies lead to this profile,” analysts said.
Management has said that there have been no loan defaults or delinquent payments since the program’s organization in 1986.
In addition to high default tolerance and adequate coverage, Fitch Ratings also cites the moderately diverse, highly-rated loan pool.
“Pool credit quality is strong with approximately 85% of the pool’s loans held by investment-grade borrowers,” analysts said.
“The program’s loan security is also solid, with more than 90% of loan principal backed by general obligation pledges and the remaining 10% backed by revenue pledges.”
About 85% of the trust’s loan portfolio borrowers have investment grade ratings. The top 10 obligors represent approximately 40% of the aggregate loan pool, Fitch said. The largest borrower, Middlesex County Utilities Authority, represents 5.3% of the pool.
Bond counsel is McCarter & English, LLP and financial advisor is Public Financial Management, Inc.
