New Jersey Economic Development Authority cigarette tax revenue refunding bonds were revised to negative from stable Tuesday by S&P Global Ratings due largely to budgetary challenges in the Garden State.

The rating remains BBB-plus.

S&P credit analyst David Hitchcock said the NJEDA’s series 2012 cigarette tax bonds sold on behalf of the state are showing credit weaknesses stemming from uncertainty on pledged revenues that are subject to annual state appropriation. The $1.04 billion of bonds sold in April 2012 also face obstacles from volatile and declining revenue stream along with New Jersey’s history of periodically increasing cigarette tax rates that can limit consumption, according to Hitchcock.

Cigarette bonds issued by the New Jersey Economic Development Authority in 2012 were revised to negative from stable by S&P Global Ratings.
Cigarette bonds issued by the New Jersey Economic Development Authority in 2012 were revised to negative from stable by S&P Global Ratings. Bloomberg News

"The outlook revision reflects our view pledged revenues that are subject to state appropriation, as well as our current negative outlook on New Jersey's general obligation debt," said Hitchcock.

The rating can be no higher than one notch below the state’s GO rating due to an annual appropriation risk to pledged revenue. S&P rates New Jersey debt at A-minus with a negative outlook.

Fitch Ratings affirmed its BBB -plus rating on the bonds with a stable outlook in March 2016. Moody's Investors Service assigned the bonds a Baa1 rating in 2012.

An April disclosure report released by New Jersey State Treasurer Ford Scudder showed that the state collected $157.6 million in cigarette tax revenues during the first quarter this year for the 2012 bonds. The state collected $189.2 million of cigarette tax revenue in the 2016 fourth quarter, according to Scudder.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.