Fitch Rates NJEDA $180.4MM Muni Rehab Bonds 'AA-' Rating Watch Negative.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 25, 2003

The approximately $180.4 million New Jersey Economic Development Authority municipal rehabilitation bonds are rated an underlying rating of 'AA-' and placed on Rating Watch Negative by Fitch Ratings. The bonds expected to be offered through negotiation on April 2, through a syndicate led by Merrill Lynch. The bonds are expected to be insured by Ambac Assurance Corp. whose insurer financial strength is rated 'AAA' by Fitch. The municipal rehabilitation bonds are comprised of approximately $48.9 million 2003 series A and $131.5 million 2003 series B (federally taxable). Final details to be determined upon negotiation. The bonds are special obligations of the authority, payable from payments made by the State of New Jersey to the authority pursuant to a contract equal to debt service. State payments are subject to appropriation.

The 'AA-' rating reflects the security derived from contract payments made by the state to the authority, subject to annual appropriation by the legislature, equal to debt service. Accordingly, the rating reflects the general creditworthiness of the State of New Jersey, whose general obligation bonds are rated 'AA' and are on Rating Watch Negative by Fitch. The general obligation rating reflects the strength of the underlying New Jersey economy, including its ranking as third in the nation in per capita personal income. However, the magnitude of the state's budget funding challenge will only be solved over multiple years. Debt levels are moderate but above average and are expected to increase along with rising pension costs.

The authority bonds are being issued under a 2002 legislative act authorizing $185 million in bond issuance for municipal revitalization and economic recovery in fiscally distressed municipalities. Bond proceeds are allocated for projects in the City of Camden, presently the only qualifying municipality in the state under this program. Security is solely from contract payments made by the State to the Authority, subject to legislative appropriation. The contract and payments are assigned to the bond trustee. The participation of the state treasurer in executing the state contract is a positive credit factor. The treasurer agrees to include in each fiscal year in the governor's budget the amounts payable under the state contract. The treasurer is to provide written notification to the authority and the trustee if the state contract amounts are not included in the budget or in the general appropriations act. No debt service reserve fund is provided.

State contract bonds are the subject of litigation alleging that state contracts violate the constitutional requirement that state debt receive voter approval. An Aug. 21, 2002, state Supreme Court decision upheld the constitutionality of the Education Facilities Act and the issuance of bonds thereunder for locals schools. However, the court reserved ruling on other state contract bonds and scheduled re-argument on Oct. 21, 2002. No decision has been announced. The court on Sept. 21, in denying a motion for clarification that a decision would not apply retroactively, stated that the plaintiffs only seek to restrain new appropriation-backed debt and have not sought to have a final court decision apply retroactively to any bonds that have been issued. It noted that the plaintiff's previous requests seeking injunctive relief to restrain action in furthering issuance of the state contract bonds were previously denied by the trial court, the appellate division, and the supreme court. New Jersey has over $10 billion outstanding bonds that are secured by state contracts.

There has been separate litigation regarding the Municipal Rehabilitation Act bonds. The constitutionality of the act supporting the program for the bonds now offered has been challenged in state superior court. In December 2002, the state enacted certain amendments to the law. Other issues remained. On March 18, 2003 the superior court rendered a bench decision granting motions to dismiss major constitutional claims. The court also vacated restraints previously issued in Camden Board of Education I and maintained in Camden Board of Education II. A no merit opinion on the cases has been provided to the authority and the state by bond counsel and the state attorney general.