The New Jersey Economic Development Authority yesterday authorized potential changes to current swap agreements as it prepares for a $450 million school construction bond sale.

At the same time, New Jersey Turnpike Authority officials may opt to increase the size of an upcoming $650 million bond sale that includes $250 million of Build America Bonds, according to Dennis Enright, a principal at NW Financial, the financial adviser to the NJTA. The Turnpike Authority board will meet Thursday to vote on the deal size.

Morgan Stanley will price the bonds April 20 in a one-day retail order period, with institutional pricing on the following day.

Meantime, the NJEDA anticipates selling $200 million of Series 2009AA school construction bonds May 5 and 6. The bonds are backed by state's appropriation pledge. JPMorgan is senior manager and Jefferies First Albany is co-senior manager, according to an NJEDA memo of yesterday's board meeting. Powell Capital Markets Inc. is the financial adviser and Wolff & Samson PC is bond counsel.

In addition, the authority will issue $250 million of Series 2009A school construction notes in a competitive deal set for May. If officials choose to sell the short-term debt via negotiation, JPMorgan and Jefferies First Albany will serve as senior and co-senior manager, respectively.

The 2009A notes will mature in 2010 and board members approved refinancing the debt next year.

"Because the 2009 Series A notes will mature in 2010, the members are asked to authorize the refinancings of the 2010 Series obligation now to ensure marketability of the 2009 Series A notes," according to the authority memo.

The authority has a $250 million floating-to-fixed-rate swap that will begin May 1. The NJEDA will pay a fixed rate of 4.51% to the Royal Bank of Canada, the counterparty, and receive 62% of one-month of the London Interbank Offered Rate plus 40 basis points.

The NJEDA has a second $250 million forward-starting swap this year that will begin Nov. 1. Bank of Montreal, as counterparty, will pay the authority 62% of one-month of Libor plus 40 basis points while the NJEDA pays a fixed rate of 4.54%.

Those swaps could change if officials restructure the agreements to limit the authority's risks on the derivatives.

"Under current market conditions, it is possible for the authority to restructure the net cash flows received from existing swap counterparties under current existing swap agreements ... by entering into new 2009 swap agreements ... with swap counterparties which reverse a portion of the existing swap agreement," according to the memo. "Interest rate swap agreements of this type (i.e., fixed interest rate receiver swaps) reduce the potential credit exposure of the authority to that existing swap counterparty."

The NJEDA last sold $175 million of school construction bonds on Jan. 22 with Banc of America as book-runner on the deal. Yields on the bonds ranged from 2.3% with a 4% coupon in 2010 to 5.8% with a 5.5% coupon in 2034. Of the deal, Assured Guaranty Corp. insures $99.8 million of debt maturing in 2034.

Standard & Poor's and Fitch Ratings assign AA-minus and A-plus ratings to the school construction bonds, respectively. Moody's Investors Service rates the credit A1.

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