New Jersey selected Bank of America Merrill Lynch to help the state refinance its school construction debt and address letters of credit that are set to expire in 2011.
The state’s Treasury Department chose the bank to work on refunding existing school construction debt sold through the New Jersey Economic Development Authority and to examine its credit facilities and derivative portfolio, according to Treasury spokesman Andrew Pratt. The bonds are backed by the state’s appropriation pledge.
Officials are still working on the details of a potential school construction refinancing, including size and pricing, Pratt said.
“Essentially, we want Bank of America to look at a couple of issues we’ve got going on, refinancing debt for savings, deal with upcoming expirations of letters of credit issues … and to better manage our swaps portfolio,” Pratt said.
It is not clear if New Jersey will move forward with a refinancing before the end of the calendar year. Pratt said the state will “move forward very rapidly” on the school construction bonds.
Officials would like to reduce the amount of debt service the state pays on the bonds. In fiscal 2011, the state owes $303.9 million in principal and interest payments on them. Fiscal 2011 began July 1.
The EDA had $8.2 billion of school construction debt outstanding as of June 30, according to the official statement for a $669.2 million general obligation refunding deal sold in October. Of that $8.2 billion, $2.5 billion is variable-rate debt. Most of the variable-rate bonds are backed by letters of credit. LOC providers include the Bank of Nova Scotia, Bank of America, Dexia Credit Local, and Wachovia Bank, according to the OS.
The EDA has 15 floating-to-fixed swaps and one fixed-to-variable derivative attached to its floating-rate debt. The notional amount of the 16 swaps was $3.6 billion as of June 30.