New Jersey priced a billion-plus dollar transportation deal last week amid the turbulence of a Federal Open Market Committee week, and the expected rate hike that came to pass.
It's planning to do so again next month.
The credit of the New Jersey Transportation Trust Fund Authority has the same fiscal story as the state does — it's showing more stability, reflected in higher bond ratings, after decades of fiscal mismanagement.
Ahead of this month's deal, KBRA
Proceeds from the TTFA's deals benefit the capital plan for the New Jersey Department of Transportation and NJ Transit. The trust fund, which was once in a "spiral of debt," has been steadied by sufficient funding.
The $1.7 billion deal was priced Tuesday by Wells Fargo with nine co-managers.
All four rating agencies have the TTFA's bonds rated one notch below New Jersey's rating: other TTFA ratings, affirmed ahead of the deal, are A1 from Moody's Ratings, A from S&P Global Ratings and A from Fitch Ratings.
The deal was the biggest on the calendar last week. Although the muni market had been facing headwinds for weeks, the market was fairly steady on Tuesday.
The bonds will mature from 2035 through 2056, and are callable in 2036. Yields ranged from 3.95% for the 2035 bonds to 5.28% for the 2056 bonds.
The TTFA plans to issue $1.9 billion of refunding bonds in October.
Kim Olsan, portfolio manager at NewSquare Capital, said the deal is an example of how the market conditions have produced attractive yields for investors. She pointed to the 15-year bonds, which saw a 4.73% yield.
"If you're maybe a maximum 15-year range buyer, and you're in New Jersey, a four and three-quarter [yield], if you're in the top bracket, that's approaching the 9% tax equivalent yield," Olsan said. "That, historically, is at the wider ranges than what we might have seen over the last 20 years or so."
The 2036 bond "a month or two ago would have come probably around a three and a quarter yield, which is still attractive on a tax equivalent basis," Olsan said. "But now that you're above 4% there, that's a nice piece to put in, particularly a New Jersey portfolio, but even a national portfolio."
Howard Cure, partner and director of municipal bond research for Evercore Wealth Management, said investors likely focused mostly on New Jersey when evaluating the bonds. The state is still burdened by pension obligations, he said, but it also got a rating upgrade from KBRA ahead of the deal.
A string of upgrades has bolstered the state's GO bond ratings, which were
The state government put its fiscal health in better order, starting in fiscal 2022 under then Gov. Phil Murphy, by making its first full
"The state's doing fairly well financially," Cure said. "The economy has been strong, just like New York, and they're very dependent upon each other — New Jersey [is] dependent on New York for jobs, and New York depends on New Jersey for workers… that should be a pretty steady credit right now."
The deal was "a sizeable par amount," S&P analyst Oscar Padilla said, which "continues to show strong commitment [from] the state to tend to its transportation network."
The bonds are backed by appropriations from New Jersey, according to Fitch analyst Karen Krop. The appropriations are equivalent to certain transportation-related taxes, but rating agencies still consider the credit an appropriation bond rather than a dedicated tax and revenue bond, Krop said.
If appropriations from the taxes fall short, the state can also allocate revenue from a sales tax on car purchases, Krop said.
If the revenue sources securing the bonds are struggling, it's not a concern, Krop said — "the state has made it clear" that it would appropriate a greater share of sales tax revenue to fill any gaps.
The TTFA's funding has not always inspired confidence.
In 2005, the Regional Plan Association, a group that advocates for infrastructure in New York, New Jersey and Connecticut, declared "
The RPA attributed the crisis to poor capital planning and an unwillingness to allocate the necessary revenue.
In a report warning of "a disastrous cycle of disinvestment," the RPA argued that "New Jersey cannot solve this crisis simply by raising gas taxes."
State lawmakers did not heed the warning. The following year, when the trust fund was nearing bankruptcy, the state refinanced its debt, stretching debt service farther into the future. By 2010, the RPA declared that the TTFA was in a "
"We have borrowed – and we continue to borrow – so much money that nearly every dollar we raise in taxes for transportation projects from the gas tax and other taxes, almost $900 million a year, is instead going to pay off interest and principal on bonds issued years ago," the RPA wrote in the report. "The trust fund is on track to be insolvent by the time it is up for re-authorization in mid-2011."
The trust fund was hardly the only state agency that was seeing this story, Padilla noted. New Jersey leaned on debt for years, racking up a liability burden that it's only begun to pay off — at considerable cost — in the last decade.
In 2016, the TTFA's funding was once again up for reauthorization. The state was initially at an impasse over how to fund the agency, prompting then-Gov. Chris Christie to order a shutdown of most road and transit capital projects. Lawmakers finally reached a
The 2016 law set up a formula to automatically raise the gas tax as necessary to cover the TTFA's expenses. Also in 2016, voters
"Uniquely, [New Jersey] can raise revenues if the projections suggest that they're not going to at least be equal to what debt service would be," Padilla said.
"This program, and the way it's set up, was intended in part to address the need for a funding source for the program," Krop said. "They did try to stabilize the funding with this structure."
The structure helps the TTFA avoid some of the credit pressures on similar issuers. One of the
For the TTFA's
According to the TTFA, it had $20.5 billion of
The TTFA was authorized to issue
