The New Jersey Economic Development Authority yesterday approved selling up to $510 million of state-contract school construction bonds, with proceeds supporting infrastructure projects through the end of December.

Merrill Lynch & Co. will serve as senior manager on the deal. P.G. Corbin & Co. is the financial adviser and Wolff & Samson PC is bond counsel. Bank of America NA will provide a letter of credit on the variable-rate portion of the transaction.

The new-money sale will consist of two pieces of 30-year debt - Series X bonds for up to $250 million that price weekly and fixed-rate Series Y bonds for up to $260 million. The maximum interest rate on the variable-rate bonds will not exceed 12% and the fixed-rate bonds will have a maximum true interest cost of 6.5%, according to New Jersey EDA documents.

Attached to the weekly Series X bonds is a floating-to-fixed-rate swap agreement in a notional amount of $250 million that will become effective on Nov. 1. State Treasury officials did not supply details of the derivative, including counterparty and type of swap by press time.

In addition, the authority moved to reduce closing fees on the upcoming transaction, with the EDA to pay all outside professionals working on the deal a total of no more than $150,000, down from the $300,000 it could have paid under existing regulations.

The EDA issues school construction bonds on behalf of the New Jersey Schools Development Authority, which oversees school construction, with annual state appropriations paying debt service costs on the bonds. The $510 million will help finance school construction projects for the rest of this calendar year, and tap into the overall $1.7 billion of the SDA's remaining borrowing capacity, which the authority has already promised to current infrastructure needs.

To finance future school construction projects, Gov. Jon Corzine in late February filed a bill to allow the EDA to sell up to $2.6 billion of state-contract bonds. That legislation currently awaits consideration in the state Senate Education Committee. Critics of that plan say the state should look towards paying school construction on a pay-as-you-go basis out of the general fund or place the borrowing proposal before voters.

The Corzine administration filed the $2.6 billion bonding measure in response to a court mandate that requires the state to fully fund school facility infrastructure projects in 31 special-needs areas known as Abbott districts.

In addition to the $510 million bond approval, the EDA announced it would replace UBS Securities LLC as remarketing agent on three school facilities construction refunding bonds due to the bank's announcement last week that it will close down its municipal bond department. The bonds include Series 2008 V-1 for $63.9 million, Series 2008 V-2 for $301.4 million, and Series 2008 V-3 for $231 million. The authority did not choose a replacement at yesterday's meeting.

"The [EDA] will appoint remarketing agents, probably within the next 30 days, from the state's pool of approved remarketing agents according to a rotation," authority spokesman Glenn Phillips said via e-mail.

 

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