The Essex County, N.J., Improvement Authority Wednesday will sell $72.6 million of lease-revenue bonds that will help Newark balance its 2010 budget.

The authority will issue the bonds as a conduit issuer. Newark will make lease payments to the ECIA, which will repay the bonds. New Jersey's largest city will pledge its full faith and credit to meet its lease payment obligations to the authority.

Bank of America Merrill Lynch is the book-runner on the transaction. DeCotiis, FitzPatrick & Cole LLC is bond counsel. Acacia Financial Group Inc. is the financial adviser for the authority while NW Financial Group is the financial adviser for Newark.

The transaction includes $41.9 million of Series 2010A bonds, $29.1 million of Series 2010B bonds, and $1.6 million of taxable Series 2010C bonds.

The Series 2010A bonds mature serially from 2012 to 2020 and include two term bonds with $12.5 million and $16.5 million of debt maturing in 2025 and 2030, respectively, according to the preliminary official statement. The Series 2010B bonds include serial maturities from 2013 to 2025 and one term bond of $11 million of debt due in 2030. The taxable Series 2010C bonds will mature in 2012 and 2013.

Newark's lease payments will mirror principal and interest payments, according to the POS.

Moody's Investors Service rates the Series 2010A bonds Baa1 and the Series 2010B and Series 2010C bonds A3. The Series 2010A bonds have a lower rating because revenue for repayment of those bonds is subject to a 2% limit on property tax increases. The Series 2010B and Series 2010C bonds are not subject to that property tax cap.

While the bonds carry Newark's pledge to make lease payments, those allocations are subject to city officials including such payments in yearly operating budgets.

"No assurances can be provided that the implementation of any current or future fiscal initiatives of the city … shall be sufficient to fully address any or all current or future financial difficulties and its ability to make or perform its payment obligations, including its payment obligations under the lease agreement necessary to make payments on the Series 2010 bonds," the POS reads.

The ECIA will use a portion of the bond proceeds, more than $40 million, to purchase 16 assets from Newark, including its symphony hall, courthouse, police headquarters, and fire headquarters. About $30 million will help finance capital improvements and environmental upgrades to these facilities.

A portion of the Series 2010B and Series 2010C bonds will advance refund outstanding general obligation debt and qualified general improvement bonds sold in 2003 and 2010.

Newark will use the asset-sale proceeds to help balance the budget for fiscal year 2010, which ends Dec. 31. About $40 million will fill the city's 2010 budget gap, along with layoffs, spending reductions, and a 16% property tax increase that the administration has already implemented.

Moody's last week downgraded Newark's $500 million of outstanding debt to A3 from A2 as the city will continue to face budget shortfalls and limited liquidity. Newark's population is 278,154 as of 2009, according to the U.S. Census.

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