Muni Market Looks Ahead to Next Week’s Sale by N.J. EDA
With the primary market at a standstill Thursday, attention turned to the first major deal of the New Year, a planned bond sale by the New Jersey Economic Development Authority that’s being challenged in court.
RBC Capital Markets is expected to price the N.J. EDA’s $381.195 million of state lease revenue bonds for state government buildings on Jan 4. The deal is rated Baa1 by Moody’s Investors Service, BBB-plus by S&P Global Ratings and A-minus by Fitch Ratings.
Fitch noted in a ratings report Thursday that some legal issues are still swirling around the bond sale.
“A lawsuit has been filed challenging the legality of this bond issue under the debt limitation clause of the state constitution; however, bond counsel strongly believes N.J. EDA’s ability to issue debt authorized by its enabling act is not subject to the limitations of the clause. Bond counsel will render a clean legal opinion concurrent with the sale of the bonds,”
The offering is comprised of
$197.275 million bonds for the Health Department and
Taxation Division office project;
$19.225 million taxable bonds for the Health Department office project; and $164.695 million for the Juvenile Justice Commission Facilities project.
Moody’s said in a report last week that the litigation probably wouldn’t affect the state’s credit.
“A lawsuit has been filed challenging the authorization of these bonds, which if decided against the state, would potentially invalidate the bonds and the use of their pro- ceeds,” Moody’s said. “The timing of the litigation resolution is uncertain, and the risk of a negative decision does not materially impact the state’s credit profile.”
S&P said the bonds are bonds are being issued to finance the construction of a new state health department office building and a new state taxation division office building in Trenton and to finance the construction of various new juvenile justice commission facilities in Ewing and Winslow townships. They are secured by basic rent payments in amounts sufficient to let the N.J. EDA pay the aggregate debt service.
“The rating reflects our assessment of the general creditworthiness of the state of New Jersey (general obligation rating A-minus/ stable) and pledged lease revenues that are subject to annual state legislative appropriation,” S&P credit analyst David Hitchcock said on Wednesday.
Fitch said the state’s issuer default rating of A incorporates: a history of structurally imbalanced financial operations and slim reserves; persistent underfunding of its liabilities; and an elevated long-term liability burden, as well as the state’s diverse and high wealth economy that has returned to sustained growth.
“The A-minus rating for the current N.J. EDA bond issue, one notch below New Jersey’s A issuer default rating, reflects N.J. EDA’s pledge to make annual payments equal to debt service on these obligations, subject to annual appropriation by the state legislature,” Fitch said.
“In the absence of additional pension reforms Fitch expects that incremental pension contribution increases will consume the bulk of natural revenue growth for the next several years and remain a significant part of the state’s budget going forward. The rating also incorporates the strong control over revenues and spending inherent in a state’s powers,” the rating agency said.
Top-rated municipal bonds finished stronger on Thursday. The yield on the 10year benchmark muni general obligation fell three basis points to 1.99% from 2.02% on Wednesday, while the 30-year GO yield dropped three basis points to 2.55% from 2.58%, according to the final read of MMD’s triple-A scale.
The yield on the two-year Treasury rose to 1.91% from 1.90%, the 10-year Treasury yield gained to 2.43% from 2.41% and the yield on the 30-year Treasury increased to 2.76% from 2.75%. ◽