Moody's Investors Service downgraded the New Jersey School Bond Reserve Act enhancement program two notches, citing the state's weak credit quality.
The rating drops to A2 from Aa3, with a negative outlook, affecting $6.75 billion of New Jersey local school district debt. Moody's had placed the program on review for a possible downgrade on April 17.
Moody's analyst Orlie Prince noted in the June 10 report that the state of New Jersey, which is responsible for replenishing the Chapter 72 fund, has seen a deterioration of its credit quality. The state's credit
"The A2 reflects our assessment of the program's pre-default guarantee and its ability to make timely payment on approximately $6.75 billion of guaranteed debt, if necessary," said Prince. "The negative outlook reflects the weakening credit profile of the State of New Jersey and its public school districts."
Prince said the pool of school districts who have taken part in the enhancement program has also seen its credit quality weakened. The districts have a general obligation quality of A1, according to a weighted average from Moody's.
"There is high correlation of credit risk between the school districts and the state," said Prince.
Christopher Santarelli, a spokesman for New Jersey Treasurer Andrew P. Sidamon-Eristoff, said in response to the downgrade that his office only comments on GO bond ratings.
