The New Jersey Transportation Trust Fund Authority plans to market $1.2 billion of A-plus-rated bonds Tuesday to finance various state transportation projects in the largest municipal bond deal for the week of Dec. 3.
Barclays will price the bonds in two separate series. McCarter & English, LLP is bond counsel.
The $326 million Series A bonds make up the remainder of the authority’s debt authorization under a 1995 bond resolution. The bonds will mature in 2042.
The $920 million of Series AA bonds comprise the first series issued under a new resolution that authorizes the authority to issue up to $3.5 billion through 2016. Maturities range from 2014 through 2032, and 2038.
Both series will be subject to early redemption.
Andy Pratt, a spokesman for the N.J. Department of Treasury, said this is an annual borrowing intended to finance Gov. Chris Christie’s five-year transportation plan that totals almost $6.4 billion.
In the next few years, debt will continue to be issued annually, beginning with about $1.2 billion in 2013 and declining to $627 million in 2016.
“We expect that, in this low-interest rate environment, the Treasury will get a very favorable borrowing cost for the citizens of New Jersey,” Pratt said.
The NJTTFA sold transportation bonds a year ago with yields ranging from .79% with a 4% coupon in 2013 to 5.05% with a 5% coupon in 2042.
The authority has maintained its A-plus ratings, which are notched off the state’s AA-minus rating.
“The A-plus long-term and underlying ratings on NJTTFA reflect our opinion of the general creditworthiness of the state of New Jersey,” said Standard & Poor’s credit analyst John Sugden.
Standard & Poor’s assigned the new bonds a negative outlook,
“Despite the negative outlook, I still, and I also believe that the market, sees both the state of New Jersey and the Transportation Trust Fund as a high-grade credit with a stable outlook,” said Richard Larkin, senior vice president and director of credit analysis at Herbert J. Sims & Co.
He added that market conditions will also contribute to high demand for the deal.
“I think it’s going to be a solid credit, well-received,” he said.
In addition to the Standard & Poor’s rating, the A1 rating from Moody’s Investors Service and A-plus rating from Fitch Ratings reflect the need for annual legislative appropriation from the state’s general fund, which the state is not obligated to make. Both Moody’s and Fitch assign stable outlooks.
In previous years, the legislature has always made appropriations in amounts sufficient to pay debt service on the bonds.
“The essentiality of the authority’s transportation financing program, the dedication of revenues to transportation needs and the importance of maintaining capital market access all create a strong incentive for annual debt service appropriations,” Moody’s analysts said.
Other strengths include high resident wealth levels, a diversified economy, recent revenue growth, and a proactive approach to managing future liabilities and cost growth.
Challenges include revenue growth that is unlikely to keep pace with increasing fixed-cost expenditures, continued structural budget imbalance, and narrowed reserves and weakened liquidity.
The NJTTFA was created in 1984 to provide a stable, predictable funding mechanism for transportation improvements undertaken by the N.J. Department of Transportation.
For fiscal year 2013, the DOT has a $3.2 billion capital program that will provide funding for state and local bridge needs, pavement rehabilitation and reconstruction, and safety programs.
The DOT will receive about $1.5 billion in federal support, and about $1.6 billion of state-funded support, including sources from the Port Authority of New York and New Jersey and the transportation trust fund.
Tuesday’s bonds will be special obligations of the TTFA payable solely from the property pledged to their payment, which includes revenue contracts, revenues, and certain funds. Revenues include a portion of motor fuels sales tax, funds from toll road authorities, motor vehicle registration fees, and petroleum products sales tax.
“It’s sort of like a hybrid,” Larkin said, explaining that while the rating is based off of the general fund pledge, the debt service gets paid from various gas taxes and tolls.
“It’s looked at as a state general fund appropriation, but I think people also look at it sort of like a gas-tax backed bond or a transportation-backed bond,” he said.
In fiscal 2013, the state appropriated $1.09 billion for TTFA debt service, made up of $540 million in motor fuel tax revenues, $228 million in petroleum gross receipts tax, $12 million in toll road contract payments, and $314.5 million in sales and use tax revenues.
For the first four months of the fiscal year through October, total state motor fuel tax revenues were down 2.6% from the same period a year earlier, according to a recent report released by the Department of Treasury. Petroleum gross receipts were also down 12.5%.
In total, New Jersey’s revenue collections for the year to date were up 3.4% from last year at $6.1 billion, largely driven by income tax collections. Monthly gross income tax collections exceeded budgeted amounts by 4.2%. For the year to date, income tax collections climbed 9.9%, or 1.6% above budgeted projections.
Both figures beat previous records, signaling that New Jersey’s economic recovery continued to boost incomes in October, according to Charles Steindel, chief economist for the Department of Treasury.
“The strength of the income tax revenue is striking and reflects sustained growth in personal incomes going into the storm,” Steindel said.
The storm did affect October revenues, but since it came late in the month, most of the impact will show up in November revenue figures, according to the state treasurer, Andrew Sidamon-Eristoff.
“The storm appears to have reduced casino, lottery, and motor vehicle revenue, and may have interfered with sales and gas tax payments,” he said. “It will take some time before we have the data needed to gauge the storm’s impact on these revenue streams precisely.”
Christie recently announced a total cost assessment of the damage sustained from Hurricane Sandy to the state at $36.9 billion. The total accounts for $29.4 billion in repair and restoration costs, as well as $7.4 billion in mitigation and prevention costs.
The magnitude of expenses that the state will need to cover after receiving federal reimbursement, and how the state will fund those costs remains uncertain.
