The New Jersey Transportation Trust Fund Authority yesterday approved $1.6 billion of borrowing for capital projects, including a $150 million variable-rate transaction that will help address existing swap agreements.
Citi will price the floating-rate bonds in mid-August, according to Steve Hanson, TTFA's executive director and the chief financial officer of the state Department of Transportation. Windels Marx Lane & Mittendorf LLP is bond counsel. JPMorgan will supply a letter of credit on the $150 million deal.
The bonds will support capital projects and also pair up with floating-to-fixed rate London Interbank Offered Rate-based derivatives that are not attached to variable-rate bonds. Previously, the swaps were joined with auction-rate securities that the authority last year refinanced into fixed-rate debt.
"It's basically there to help us as a hedge against the 2003 Series B bonds," Hanson said. "Those were auction-rate securities and when we tried to take them out last fall, we ended up not being able to do it [as] variable rates, we had to issue fixed-rate bonds in their place and we still had the swap agreement. So, this is basically to replace those bonds with variable-rate bonds now - that's the primary purpose of it."
Hanson said the authority plans to issue additional floating-rate debt in the future to address the remaining $195 million of swaps that it has that are connected to fixed-rate bonds.
It has five Libor swaps with counterparty Goldman Sachs Mitsui Marine Derivative Products LP. In the agreements, the TTFA receives either 67% of one-month Libor or 67% of one-week Libor and pays fixed rates ranging from 3.53% to 3.67%, according to New Jersey Treasury Department documents.
"The total was $345 million and $150 million is what we're doing now because that's as much as we could get from JPMorgan in terms of a letter of credit," Hanson. "So we'll probably go out there again at some point and try and finish off the rest of that $345 million that was originally issued."
The authority plans to issue new-money bonds again in the late fall. Officials have yet to select an underwriter on that deal as the Treasury Department is completing its selection of investment banks for its senior and co-senior underwriting pools, according to Hanson, who served on the selection committee.
The TTFA may issue its own request for proposals for the transaction but will probably choose from the state's underwriting pools, he added.
The authority may issue bonds for its fiscal 2010 capital program in one sale or divide the transactions into two deals.
"We're not there yet," Hanson said. "I'm hearing more people say we should be breaking it up, so I think that's probably where we're going, but we don't know right now."
In looking ahead, interest rates on new-money bonds that the authority sells in fiscal 2010 and fiscal 2011 will determine how much bonding capacity it has in fiscal 2011.
The program will run out of funds to support new borrowing in fiscal 2012 as the authority's yearly $895 million allocation will go entirely to debt service costs. Officials are now watching how much debt the TTFA can sell in fiscal 2011.
"We plan on issuing $1.6 billion this year and $1.6 billion in 2011 in order to support those two capital program years," Hanson said. "The interest rates are going to determine over the next two years how much program we can do."
In a separate issue, Gov. Jon Corzine yesterday signed into law a state stimulus bill that creates a new economic redevelopment and growth grant program, among other plans. That initiative aims to spark development through grants financed by future tax revenue derived from redevelopment areas.
