Muni Mar­ket Looks Ahead to Next Week’s Sale by N.J. EDA

The Bond Buyer - - Market News - By Chip Bar­nett & aaron Weitz­man

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,”

Fitch said.

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%. ◽

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