The New Jersey Transit Corp. will issue $275 million of certificates of participation next week to finance 131 multi-level rail cars that will help ease overcrowding.
Technically, they are Garvees, said Anne Van Praagh, an analyst with Moodys Investors Service, in describing the deal, referring to grant anticipation revenue vehicles. The COPs are secured solely by a pledge of federal grants.
Moodys has rated the deal A2. Standard & Poors rates the corporation COPs A-minus. Fitch Ratings last rated the COPs in 2003, assigning an A rating.
In its report, Moodys also affirmed its A1 rating on New Jersey Transits $920 million of senior-lien master lease COPs. Moodys said its rating is based on lower debt service coverage provided by the federal grants, the lower priority of payment relative to senior certificates, and a moderately weaker additional bonds test.
New Jersey Transit is the third largest provider of bus, rail, and light-rail transit in the country, according to information on its Web site. It serves an area of more than 5,325 square miles, and nearly 223 million passenger trips are made on the system each year.
Lehman Brothers is senior underwriter on the deal, which is also being underwritten by Banc of America Securities LLC, Advest Inc., and Loop Capital Markets LLC, Morgan Keegan & Co., Sterne Agee & Leach Inc. Wilentz, Goldman & Spitzer PA is bond counsel, Phoenix Advisors LLC is the financial adviser, and Financial Guaranty Insurance Co. is expected to insure the deal.
The one new thing I would say there is that in order to get the federal funds New Jersey has to show it can provide the 20% state matching requirement which traditionally has been allocated from the states Transportation Trust Fund, Van Praagh said. But money in the TTF appears to be pretty constrained beyond 2006 and its not clear at this time how the state will provide matching funds. But in our view the state has such a high incentive to get federal highway funds and federal transit funds that we think they will identify sufficient matching funds in time.
The Moodys analyst said Congress recent passage of a multiyear transportation spending bill helps to provide additional assurance for the credit.
Congress basically says there is $286 billion over five years for highways and transit programs. And that is funded through a federal gas tax, Van Praagh said. A portion of the highway trust fund monies are guaranteed for transit.
The transit corporations credit is also strengthened by its status as the states sole recipient of federal mass transportation aid, she said. As a result, it does not have to compete with others for that money.
Robert Webb, New Jersey Transits manager of project finance, said federal grants and state money provide the agency with a majority of its funding.
Except under very limited circumstances, we cant have debt. This is a lease so it doesnt qualify a debt, Webb said. Under our enabling legislation we only have the ability to issue something which is seen as debt if it is backed by a federal full-funding grant agreement.
