New Jersey finance officials may head back to the municipal bond market in the next three weeks to finish a $1.94 billion school construction bond refinancing that was downsized earlier this month due to unfavorable pricing conditions.

The Treasury Department trimmed $800 million from the Jan. 14 offering by the New Jersey Economic Development Authority, which occurred the same day Gov. Chris Christie said health care obligations were “bankrupting” the state.

The state could complete the refinancing deal before Christie’s budget speech on Feb. 22, depending on market conditions. Officials are watching the market for pricing opportunities to finish refinancing the variable-rate bonds into fixed-rate mode and solve the state’s need to replace letters of credit that expire this year.

“If we’re going to do it, we want to act quickly,” said Jim Petrino, director of the Office for Public Finance. “There may be a February window to get it done.”

Petrino and his team are also planning to request bids for replacement LOCs in the event that the state is unable to complete the school construction refinancing.

“We haven’t put an outside time on it, but I’m not going to wait for [the market],” he said. “I’m probably going to solicit for replacement letters of credit and dual-track it.”

Some have questioned whether New Jersey had to cut the refinancing to $1.11 billion from $1.94 billion due to problems in the municipal market or because Christie’s comments at a town hall meeting that day hurt the deal’s pricing.

The Jan. 14 refinancing helped the state terminate $784.8 million of swaps and reduced the amount of its school construction debt in need of fresh LOCs. New Jersey will still have roughly $350 million of letters of credit that it must address in the first half of 2011. They include a $64 million LOC that expires at the end of April and another $115 million LOC that will end in early June on school construction debt. About $172 million of New Jersey Building Authority letters of credit run out in May and June.

“We would have been facing $1 billion between April and June and now its only $350 million,” Petrino said. “So I’m much less concerned about [LOC] capacity restraints now. We’ve freed up some capacity from the banks by doing the refunding and conversion to fixed rate and the other index products.”

Christie, a Republican, is set to release his fiscal 2012 budget proposal Feb. 22. Those revenue and expenditure projections need to be included in any bond offering that follows the budget address. If the refinancing fails to occur before Christie’s speech, the state would be ready by mid-March with the proper disclosure documents in order to return to the market for a potential refinancing, Petrino said.

Christie continued to expand on his bankruptcy comments Tuesday, when he told Bloomberg radio that states should not use bankruptcy as an option to address fiscal challenges. Congressional lawmakers are evaluating the need for legislation that would enable states to declare bankruptcy in the face of mounting debt obligations and pension and health-care liabilities.

“I don’t think that we’re quite ready at that point to need that tool,” Christie said in the interview. “I think first we should belly-up to the bar and do our jobs, without having to resort to that kind of tool. So my view is, let’s first try to see if we can make this work in the system the way it is and force these types of changes through political will and leadership. And that should be the first thing we try to do before we talk about bankruptcy.”

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