Nov 27 - Fitch Ratings assigns an 'F1+' rating to the New Jersey Building
Authority (NJBA) state building revenue bond anticipation notes, series 2012A.
The notes are expected to sell via competitive bid on Dec. 11, 2012 and are due
on Dec. 15, 2013.
In addition, Fitch also affirms the 'A+' rating on the state of New Jersey's
outstanding appropriation-backed debt. The Rating Outlook is Stable.
The notes are payable from payments made by the state to the NJBA pursuant to a
lease, subject to legislative appropriation. The notes are expected to be
redeemed by the issuance of long-term bonds issued by the NJBA which have been
authorized for this purpose.
KEY RATING DRIVERS
MODEST SHORT-TERM OBLIGATION: The 'F1+' rating on the notes reflects the
security provided by the already authorized issuance of long-term bonds by the
NJBA and the modest size of the current offering.
APPROPRIATION OBLIGATION OF THE STATE: The 'A+' rating on the NJBA's bonds, one
notch below the Fitch state general obligation (GO) bond rating of 'AA-',
reflects the requirement of annual appropriations for debt service.
LONG-TERM STATE CREDIT QUALITY: The state of New Jersey's GO bond rating of
'AA-' with a Stable Outlook reflects strong wealth levels, a diverse economy,
limited financial flexibility, a high debt burden, and significant long-term
liabilities. The state is currently challenged by a slow economic recovery and
unemployment rates that remain above national averages. Further, while
management has proactively responded to past revenue weakness, and growth in
state spending has been contained, the state's budget remains structurally
imbalanced as full funding of annual pension obligations is several years off.
The notes being issued are special obligations of the NJBA, payable from lease
rental payments made by the state of New Jersey, subject to appropriation. The
resolution authorizing these notes includes authorization for their redemption
by up to $50.83 million in bond proceeds that also fund project completion. The
current project is exterior renovations to the state's capitol building as well
as the relocation of mechanical equipment from the facility's garage. Credit
strength is enhanced by the master lease structure, which encompasses numerous
state buildings. Rental payments under the master lease are made semiannually
directly to the trustee. The obligation of the state to make such rental
payments is absolute and unconditional, subject only to annual appropriation. In
the event of non-appropriation, remedies include lease termination and exclusion
of the state from the facilities. Rental payments are not subject to state
occupancy or use of the leased properties. Furthermore, the state budgets its
rental payments with other state financing leases, thereby differentiating them
from discretionary budgetary expenses.
LONG-TERM CREDIT QUALITY
New Jersey's 'AA-' GO credit rating reflects its high wealth levels and broad
economy, offset by a high debt burden and a multitude of spending pressures,
including continuing capital needs, as well as significant unfunded pension and
employee benefits obligations. Despite passage of pension and benefits reform
legislation which will restrain future growth in the state's accumulated
liabilities, continued pension funding level deterioration is projected through
the medium term as full funding of the actuarially required contributions is
phased in over several years, resulting in sizeable, planned increases in annual
contributions. Fitch believes that meeting the requisite increases in pension
contributions will be challenging and is likely to conflict with other long-term
challenges, such as property tax relief, school funding, and infrastructure
Hurricane Sandy resulted in tremendous damage to infrastructure in the state,
particularly to its coast line and transit operations. The total cost estimate
for damages in the state has been preliminarily estimated by the state at $29.4
billion; significant federal reimbursement through FEMA is expected. How the
state will fund its share of costs given its narrow cash balances prior to
receiving FEMA reimbursements is uncertain, although Fitch believes that cash
flow borrowing this fiscal year, beyond what the state has recently financed, is
a possibility. Fitch will continue to evaluate the state's financial and
economic condition as it relates to recovery from the hurricane as additional
information becomes available.
For additional information on the state of New Jersey, please see "Fitch Rates
NJEDA's $399MM School Facilities Construction Bonds and Notes 'A+'; Outlook
Stable" dated Sept. 14, 2012, available at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'Rating U.S. Municipal Short-Term Debt' (Dec. 8, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria