Fitch Affirms NJ Transit Corp Capital Grant Anticipation Notes at 'BBB+'.

NEW YORK -- Fitch Ratings affirms the rating on New Jersey Transit Corporation's (NJ Transit) $262 million in outstanding Capital Grant Anticipation Notes (GANs or notes), series 2000B at 'BBB+'. The series 2000B notes are secured by Federal Transit Administration (FTA) grants pursuant to a Full Funding Grant Agreement between the FTA and NJ Transit which financed the construction of the Hudson-Bergen Light Rail Transit System Minimum Operable Segment Two. The Rating Outlook on the GAN's is Stable.

Credit strengths for the notes include the contractual nature of the FTA's funding obligation and the comprehensive project development and approval process that is required prior to the execution of the Full Funding Grant Agreement and also NJ Transit's experience in constructing large scale capital projects. Additionally, while grant receipts have come in nearly at the amounts and times pursuant to the Full Funding Grant Agreement, the notes also benefit from a flexible structure capable of accommodating delay in federal funding. Credit concerns center on the FTA's contractual obligation which is subject to Congressional appropriation that may affect the amount and timeliness of grants, as well as the reauthorization risk inherent in the multi-year federal funding of surface transportation programs.

The Full Funding Grant Agreement signed between the FTA and NJ Transit in 2000 called for $500 million in funding for the project to be paired with approximately $554 million in local funding and $153 million in federal grants under a separate FTA program. To date through federal fiscal year 2007 (Sept. 30 fiscal year end), NJ Transit has received approximately $344 million, or approximately 98% of the funding anticipated through this period. Though grant receipts for the series 2000B notes have been 98% of the amount expected, flexibility in the notes' structure to accommodate variability in grant receipts is a key credit consideration. The notes are able to withstand in excess of a year's delay and up to a 30% reduction in each year's grant receipts, provided that substantially all grants are received by 2010. Fitch also estimates that when funds available in the debt service fund are available for debt payment, the bonds can be paid with receipt of 91% of the total Full Funding Grant Agreement.

To date NJ Transit has paid the final 2011 maturity of the series 2000C notes and has also paid $17.2 million of the $66.2 million 2010 maturity. FTA budgets through federal fiscal year 2009 show that approximately 98% of the remaining $155 million will be paid to NJ Transit, allowing for early retirement of the notes in federal fiscal year 2010. NJ Transit plans to use the series 2000C debt service reserve fund to make the final $52 million payment in 2010.

The Full Funding Grant Agreement financed the Hudson-Bergen Light Rail Transit System Minimum Operable Segment Two project, an extension of the existing Hoboken, NJ, to Bayonne, NJ, light rail line five miles north from Hoboken Terminal to North Bergen, NJ and one mile further south in Bayonne, NJ. The project was completed in June 2005, approximately six months earlier than the revenue operation date required by the FFGA.

An instrumentality of the state of New Jersey, NJ Transit is responsible for planning, coordinating and operating the state's public transportation network, the nation's third largest. NJ Transit's operations include an extensive fixed-route bus, commuter rail, light rail and para-transit network.

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