New Jersey Turnpike Will Test Market with $525 Million

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The New Jersey Turnpike Authority is likely to face spread penalties for its $525 million revenue bond deal this week, but strong demand is still expected despite the state's credit woes.

The pricing, expected Wednesday, is part of a 10-year $7 billion capital improvement program that expires in 2018. The authority plans to issue an additional $500 million in new money parity bonds later this year with an additional $100 million to be sold next year. This week's deal is rated A2 by Moody's Investors Service, A by Fitch Ratings and A-plus by S&P Global Ratings.

The turnpike has $10.43 billion in parity debt, according to Moody's.

Municipal Market Analytics partner Matt Fabian said New Jersey spreads have been trading between 100 and 90 basis points above the benchmark, but has been steadier recently to echo a trend seen in the overall municipal bond market. While the Turnpike Authority will be impacted by New Jersey's fiscal challenges that include escalating pension obligations, Fabian expects the authority to benefit from investor demand for revenue bonds and its strong management.

""There is going to be a penalty on any credit associated with New Jersey," Fabian said. "In general though, the turnpike authority has been fairly well run compared to the state."

New Jersey has the second lowest bond rating of the U.S. states at A-minus by S&P Global Ratings, A2 by Moody's Investors Service, A by Fitch Ratings and A by Kroll Bond Rating Agency. Only Illinois is rated lower.

Howard Cure, director of municipal bond credit research at Evercore Wealth Management, said investor appetite for New Jersey debt that isn't tied to general obligation bonds may help keep spreads tighter for the turnpike. He noted that the NJTA has not experienced a negative spillover from state credit pressures as happened in neighboring Pennsylvania with the Pennsylvania Turnpike Commission.

"The state has a lot of wealthy investors who want to hold some New Jersey paper and this is a good alternative," said Cure. "The demand for New Jersey is very strong."

NJTA chief operating officer John O'Hern noted in an investor road show presentation that the agency had a strong 2016 financial performance with total revenues up 2% to $1.79 billion. Toll revenues rose 1.1% for the year thanks largely to a mild winter and low gas prices, O'Hern said.

Goldman Sachs and JPMorgan are lead managers. Raymond James, Stifel and U.S. Bancorp are co-managers. Hilltop Securities is municipal advisor and Wilentz, Goldman & Spitzer is bond counsel.

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Transportation industry New Jersey
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