Fitch Assigns `A-' Rtg To New Jersey Transit Capital GANs.

Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 6, 2000

Fitch assigns an `A-' rating to the New Jersey Transit Corporation's (NJTC) $284,915,000 capital grant anticipation notes series 2000A, which are scheduled for a negotiated sale on or about Sept. 11, through a syndication headed by PaineWebber Inc. The series 2000 notes refinance remaining maturities of the capital grant anticipation notes, series 1997A, which Fitch rates `AA'. Series 2000 notes mature on Feb. 1, 2002-2004.

The series 1997A notes financed construction for a portion of New Jersey Transit's Hudson-Bergen light rail project. These notes are secured by a standby deficiency agreement with the transportation trust fund authority, and bear the same rating as the authority's bonds. Actual payments for the notes, however, are being made under a full funding grant agreement (FFGA) with the Federal Transit Administration (FTA), executed in 1996, as amended. The series 2000A notes are secured by FTA payments under that FFGA, but without support from the New Jersey transportation trust fund authority or any other source.

While various transit authorities have FFGAs with the FTA for `new start' transit projects, this will be the first debt issuance secured solely by such an agreement. FFGAs are provided by the FTA for eligible transit projects, such as fixed guideway systems, and bus or HOV dedicated facilities, under its Section 5309 discretionary funding program. This program differs from the FTA's Section 5307 formula funding, which allocates assistance to transit authorities according to an urbanized area's population and transit service provided. Fitch assigned `A' ratings to the New Jersey Transit Corporation certificates of participation, series 1999A and 2000A, relating to a Master Lease Agreement, and payable solely from Federal Transit Administration formula grants.

Strengths of the FFGA program include the contractual nature of the FTA's funding obligation, and a comprehensive screening process for transit projects, which includes project approvals at both the local and federal level, acceptance of the project's local funding share and completed environmental reviews. The efficiency of the FTA's electronic reimbursement system is another plus. Weaknesses of the program are largely political in nature. The FTA's contractual obligation is subject to Congressional appropriation, and Congressional intervention at the project level can significantly affect the timeliness of grant payments. In addition, all federal surface transportation funding is subject to reauthorization cycles. TEA 21, the current transportation funding cycle, runs through 2003. Finally, there has historically been a slight discrepancy between committed and received grant funds.

Other credit considerations for FFGA-backed debt include the experience and track record of the local transit authority to manage new projects, including the quality of the local revenue pledge. This is important since FFGAs have performance criteria that allow for the withholding, withdrawal or reimbursement of federal funds. In some cases, the issuer actually cancelled a FFGA project, terminating the FTA's responsibility to make further payments.

In the case of NJTC's notes, factors supporting the `A-` rating assignment include the regional importance and sufficiency of local support for the project, the fact that its FFGA has been in place since 1996, the authority's favorable working relationship with the FTA, and the operating status of the first phase of its transit project. The notes have a 12-month early segregation of grant payments with a trustee, and are structured with complementary call provisions one year prior to stated maturity, as well as a debt service reserve fund. This surplus collateral in advance of the stated maturity date is an important credit strength, given the political risks associated with the potential timeliness of grant funding. Funding for all maturities of the current series takes place within the current transportation funding cycle. Finally, note refinancing is an available option to NJTC.

Fitch will rate FFGA-backed notes issued by U.S. transit authorities on a case-by-case basis. The combination of credit factors will most likely vary across different projects within the same authority, from one authority to another, and across federal transportation funding cycles. Because of this, we expect a variety of FFGA note structures to emerge, and with them, a wide range of credit ratings.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.