IRS Audits $1.37 Billion of N.J. Turnpike BABs

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The Internal Revenue Service is auditing the New Jersey Turnpike Authority’s $1.37 billion of Series 2009F Build America Bonds in a routine examination.

The authority is the latest issuer to reveal it is being audited as part of an IRS review of BAB transactions. Issuers are being asked to include information on pricing, how proceeds were used, and about buyers of the debt.

The Metropolitan Water Reclamation District of Greater Chicago and San Antonio’s CPS Energy recently disclosed that the IRS is auditing BABs they sold in August 2009 and June 2009, respectively.

Clifford Gannett, the IRS’ tax-exempt bond office director, told The Bond Buyer on Oct. 22 that the IRS is currently reviewing between 15 and 20 BAB transactions as part of a routine surveillance.

The Turnpike Authority received the IRS audit notification on Oct. 4. The agency, which oversees the Turnpike and the Garden State Parkway, must mail all requested documents by Nov. 1 to the IRS.

The audit does not indicate any mistakes or errors on the authority’s part.

“At this time, we have no reason to believe that your debt issuance fails to comply with any of the applicable tax requirements,” the IRS wrote in a letter dated Sept. 27.

The audit is seeking information about Series 2009F taxable revenue BABs, which Morgan Stanley priced on April 20, 2009. The authority will need to detail the names of all primary-market buyers for each maturity, the amount they purchased and at what price, and the date and time of each primary-market sale.

The IRS is also interested in any customers that are related to the authority, including a pension fund.

“Provide a record of any acquisition of any of the bonds in the primary or secondary market for the bonds by or on behalf of the issuer of the bonds; by or on behalf of any agency, instrumentality, fund, or affiliated person related to the issuer; or by or on behalf of any pension plan sponsored by the issuer or in which the issuer participates,” the letter reads.

NW Financial Group served as financial adviser on the deal. Wilentz, Goldman & Spitzer PA is bond counsel.

The entire $1.37 billion issue matures in 2040. It priced at par with a 7.414% coupon.

The audit comes as the turnpike prepares to issue up to $2 billion of BABs in mid-November to help support a road-widening project and other capital needs. Depending upon market conditions, that sale could include $538.6 million of refunding bonds. Potential refinancing candidates include $154.2 million of Series 2004C-1 bonds and $384.3 million of Series 2003A bonds.

Goldman, Sachs & Co. is book-runner. Citi is co-senior manager. Wilentz Goldman is bond counsel. NW Financial is the financial adviser.

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