The New Jersey Turnpike Authority will take action on $550 million of debt within the next two months to convert auction-rate securities into variable-rate mode, pay down outstanding floating-rate debt, and generate new money for the agency's major road-widening project.

Recent instability in the auction-rate market has cost the NJTA roughly $1 million to $1.5 million in additional interest rate costs during the past two to three weeks, according to Dennis Enright, a principal at NW Financial Group, the authority's financial adviser.

"We've been trying to figure out how to address the excessive costs created by the current market place, particularly in the auction-rate securities," Enright said.

That strategy includes converting $225 million of auction rates into a floating-rate mode, possibly within the next 35 to 45 days. The authority will attach a letter of credit to the variable-rate bonds, yet Enright declined to say which bank was offering the enhancement.

Following the debt conversion, the NJTA will then competitively sell $325 million of one-year notes to pay down $175 million of floating-rate securities and help finance $150 million of capital needs related to the $1.5 billion road-widening project.

Wilentz, Goldman & Spitzer PA will serve as bond counsel on the auction-rate conversion and the note sale.

Enright did not want to identify which series in particular the upcoming transactions would affect, but did say the authority's $400 million of auction-rate Series 2003 D1-9 bonds "are the most expensive in this market environment."

Along with the 2003 Series D1-9 bonds, the NJTA has another $400 million of auction-rate Series 2000 B-G bonds. The authority's variable-rate securities include Series 1991 D for $371 million and Series 2003 C1-3, totaling $500 million.

Enright said that all but one of the auction-rate series have failed during the past few weeks, with the authority's maximum reset rate on its auction-rate securities reaching 175% of one-month of Libor, or roughly 5.53%.

Of the Series 2003 D1-9 bonds, D1, D3, D5, and D7 reset every week with the remaining tranches pricing every 35 days and Financial Security Assurance and XL Capital Assurance Inc. insuring the securities. So far, the highest reset rate on the bonds has been 5.46%. Broker-dealers on the Series 2003 D bonds include Morgan Stanley for the D1-4 bonds, UBS Securities LLC for the D5-D8 series, and Citi on the D9 tranche, according to NJTA's 2006 financial report.

Each portion of the Series D1-9 bonds has a swap attached to it, with the security's broker-dealer also serving as counterparty on the corresponding swap agreement. In all of the nine swaps, the authority pays a fixed rate of 3.03% while the counterparty pays 63% of one-month of Libor plus 20 basis points.

Enright said the authority does not plan to terminate its swap agreements.

"We're going to maintain the swaps. . . and by converting [them] into these different types of instruments, we'll be able to more effectively match the swap rate," Enright said.

The authority's second auction-rate security, Series 2000 B-G, resets every week, with the debt repricing as high as 5.53% on March 4. MBIA Insurance Corp. insures the debt and Citi is the broker-dealer.

Attached to the Series 2000 B-G bonds are swap agreements that include the authority paying a fixed rate of 4.31% and Morgan Stanley and UBS AG paying 64.5% of five-year Libor.

While the bulk of the two transactions will help tackle rising interest-rate costs for the authority, $150 million of note proceeds will go towards infrastructure improvements to help the roadway system take on additional vehicle capacity.

The short-term debt will help the authority keep its road-widening program going while lawmakers debate how the state should finance transportation infrastructure in the future.

Gov. Jon Corzine last month filed legislation that would create a public benefit corporation that would oversee the Turnpike, the Atlantic City Expressway, and the Garden State Parkway and raise tolls dramatically to help finance nearly $38 billion of debt. Those proceeds would then pay down half of the state's $32 billion of outstanding debt and help finance transportation infrastructure for 75 years.

Assemblyman John Wisniewski, D-Middlesex, chairman of the transportation and public works committee has proposed an alternative plan, which includes a combination of toll and gas-tax increases and possibly leasing or selling the state lottery.

Enright said the authority does not anticipate selling additional debt - beyond notes mentioned above - to keep capital projects afloat while lawmakers map out how best to finance transportation needs in New Jersey.

"The authority's doing business as usual," Enright said. "They're tending to the roads and servicing the customers and that's why they're going to go ahead with the $150M to keep that project on time and on budget."

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