The South Jersey Port Corp. last week sold $25.8 million of debt aided by radio and print advertisements for a sister bond deal as retail buyers held back on the bonds.
Proceeds will help support the development of a new port in Paulsboro in southwestern New Jersey. Port activity in the region is an economic stimulus for the area and the state each year allocates roughly $7 million to the SJPC to help maintain its debt service reserve fund. Repayment of the Series 2009O bonds will rely on corporation revenues as well as annual state appropriations.
"Purchasers of the Series 2009 bonds should assume that the net revenues of the corporation will not be sufficient to pay the principal or mandatory sinking fund payments and interest on the Series 2009 bonds as they become due," according to the preliminary official statement. "And that the source of payment for the Series 2009 bonds will be funds provided by the state by appropriation to restore the balance in the debt reserve fund to its required level."
Of the $25.8 million, retail sales account for less than 10% of the transaction, said Lawrence Bashe, managing director at Raymond James & Associates Inc., the book-runner on the deal. At the last minute, marketing of the bonds turned towards institutional investors rather than the retail market. The bonds sold in one day, without a retail-order period, and included $5.2 million of debt subject to the alternative minimum tax.
"So fortunately, we were nimble enough to shift gears a little bit so a little less than 10% of the deal went retail," Bashe said. "The retail market backed off and these days you have to be nimble because this market changes dramatically in the space of a day or two."
Bashe said the SJPC bonds benefitted from advertising on a $175 million New Jersey Economic Development Authority school construction bond deal that held its retail-order pricing on Tuesday. As the school bonds are state contract debt, the state Treasury Department ran print and radio ads to help the deal sell. Those ads focused on the NJEDA sale, but Bashe said the SJPC bonds gained from the marketing campaign as well.
"It just generates demand for New Jersey paper," he said. "In New Jersey, we have a lot of retail investors who need tax advantage and anything that raises their level of interest is going to help even if it wasn't our deal that was advertised."
Banc of America Securities LLC priced the NJEDA tax-exempt school bonds, with retail investors buying 25%, according to Tom Vincz, spokesman for the Treasury Department. Institutional investors in the port corporation deal include bank trusts, investment advisers, and money managers, Bashe said.
"We were successful with some of those types of investors who are outside the state of New Jersey, but with New Jersey clients," he said. "This is an area we've had to go to as some of the more traditional institutional investors are not active in the market."
Assured Guaranty Corp. insures the bonds. Since 1972, New Jersey each year has allocated funds to the SJPC to support its debt service reserve fund under a 1968 statute. Since 2004, the amount has ranged from $6.4 million to $7.4 million, according to the POS. Standard & Poor's and Moody's Investors Service rate the bonds A and A1, respectively.
New Jersey has more than $32 billion of outstanding debt, with 8% of its budget paying for debt service. In addition, the state is facing a $2.1 billion deficit in the fiscal 2009 budget. In November, voters approved a constitutional amendment to require bond referendums for all state-backed, non-revenue debt. Since the 1968 statute pre-dates that constitutional amendment, the SJPC will continue to receive yearly state aid, the Treasury Department said.
"The state has made a big commitment to [SJPC] activities and part of this was financing the preliminary work for a major expansion of a port," Bashe said. "So there's no question when we got a chance to explain it, that [investors] understood that it's a big commitment on the part of the state."