Fitch Rates NJ Transportation TFA $565MM Bonds 'A+' Underlying.

NEW YORK -- Fitch Ratings assigns an underlying 'A+' rating to the New Jersey Transportation Trust Fund Authority's $565,000,000 transportation system bonds, 2005 series A (forward delivery bonds), scheduled to sell Sept. 23 through negotiation via a syndicate led by Bear, Stearns & Co. Inc., JPMorgan, and Merrill Lynch & Co.; MBIA Insurance Corporation is expected to insure the bonds. The bonds are due Dec. 15, 2006-2014. Other details are to be determined. The bonds are scheduled with a forward delivery date of March 22, 2005. The 'A+' rating assigned to $6.2 billion outstanding parity bonds is affirmed.

The bonds are issued to partially refund the authority's 1995 series A and B bonds issued to fund the transportation capital program. The bonds are secured by and payable from stated payments to be made to the authority from the transportation trust fund account within the state's general fund under a contract with the treasurer of the State of New Jersey, subject to legislative appropriation. The payments are pledged first to debt service. The amended contract, pursuant to statute, specifies minimum equivalent amounts from several transportation-related taxes and fees, the vast majority of which are now constitutionally dedicated to transportation and may not be used or borrowed for any other purposes. The taxes and fees themselves are not pledged as security, only their deposit to the account. Should a shortfall in yield occur, it would be made up from other general fund revenues. The act limits annual bond issuance, exclusive of refunding bonds, to $650 million with unsold amounts carried forward to future years.

The bonds now offered are issued under the authority's 15th supplemental resolution to provide up to $1.9 billion of refunding bonds. The authority's transportation program has been constrained by lower revenue allocations to the fund. For the last five fiscal years, the state has appropriated only the constitutionally dedicated amounts of $805 million but not the total statutory amounts of $919.5 million. Fiscal 2005 debt service is $550 million, leaving some $255 million available for other transportation projects. To reduce near-term debt service, the authority has been structuring amortization of new money bonds to include two years' capitalized interest, with the first principal payments deferred for two fiscal years. For these refunding bonds, interest is not capitalized, but principal repayment is deferred for one fiscal year. The bulk of the $36 million in debt service savings is being achieved in the first two years.

Since security rests solely on the appropriations to be made by the state, the rating on these bonds reflects the state's own credit. The state's general obligation bonds are rated 'AA-' reflecting the state's high wealth and diversified economy, with only a mild recessionary impact on its employment base. The transition period to economic and revenue recovery is now well under way, if not completed, although financial recovery appears more distant. New Jersey is borrowing for operations for a third straight year to accelerate spending for an expansive budget instead of restoring fiscal balance. A recent court decision allows the deficit bonding but precludes its future use. The state must develop alternative budget balancing measures for next year, and the decisions it makes will underlie future credit evaluations.

The debt burden is now approaching high levels and rising as the state addresses court-ordered educational facilities program and transportation needs. Net tax-supported debt after this sale amounts to $24.8 billion, or $2,952 per capita and 7.1% of personal income; excluding pension bonds, debt equals 6.3% of personal income.