Fitch Rts $150MM Garden State Preservation Trust Bonds 'AA-' Underlying

Business Wire, Sept 13, 2004

NEW YORK -- Fitch Ratings assigns an 'AA-' underlying rating to the Garden State Preservation Trust, $150 million open space and farmland preservation bonds 2005, series B (forward delivery bonds). The bonds are expected to price through negotiation September 16 by a syndicate led by Bear Stearns & Co. Inc. The bonds are due Nov. 1, 2010-17 and will have a forward delivery date of Dec. 1, 2005. The bonds are expected to be insured by MBIA Insurance Corporation. The underlying 'AA'- rating on the $1 billion parity bonds is also affirmed.

The 'AA-' rating on the bonds now being offered reflects the strength of the voter-approved constitutional dedication of the payment source -- a portion of the broad state sales tax for the purposes of the bond issue. The almost $6 billion state sales tax provides wide coverage (56 times) of the $98 million annual dedication, which constitutionally must be credited to a special account in the general fund to be used solely for acquiring property for open space, agricultural and historic preservation, and servicing debt issued for such purposes. Pursuant to legislation and a state contract, through June 30, 2009, the dedicated sales tax is annually appropriated to the trust from the special account and must be used first to pay the full-year's debt service on bonds and second to provide for preservation projects. From July 1, 2009 until June 30, 2029 the dedicated monies must be applied only to make necessary debt service payments up to $98 million. The constitutional amendment provides that if the legislature fails to make the annual appropriation then the funds must remain in the special account and may not be used or borrowed for any other purposes. General obligation bonds of the State of New Jersey are rated 'AA-' and most other State of New Jersey appropriation debt is rated 'A+'.

Additional bond issuance was originally limited to $1 billion with all new money issuance to occur prior to July 1, 2009, except for refunding purposes. However, voters in November 2003 approved another $150 million. Legislative approval was received in June 2004 and this sale exhausts the supplemental bonding authority. The 2005 series A bonds exhausted the initial authorization.

The authorizing legislation provides that the dedication of the sales tax is subordinate to any sales tax pledged to general obligation bonds authorized before the effective date of the amendment, which is Dec. 3, 1998, and any other dedication prior to such effective date. This would include possible future refunding bonds, since the general authorization for such refunding occurred in 1985 and encompasses a sales tax pledge. As the dedicated tax may not be used for preservation projects after June 30, 2009, bonds have been structured to minimize debt service before such time to free up more funds for preservation projects. Additionally, the $98 million tax dedication extends until June 30, 2029, limiting the maturity of any bonds issued. All bonds are on parity. The bonds sold in 2003 included capital appreciation bonds (CABS) and current interest bonds with the first principal payment not occurring until 2010. The 2005 series A bonds were structured to mature between 2016-2028 with the bonds now being offered amortize between 2010-17.

The bond resolution pledges as security the state contract between the state treasurer and the trust and assigns it and the amounts payable to the trustee. Upon budget enactment the full $98 million of the dedicated sales tax is credited to the special account. The state contract provides that through 2009, the trust is required to provide to the state treasurer by July 1 a payment schedule for the debt service and project funding requirement dates. Subject to annual legislative appropriations, effectively the state must pay over to the trustee on the first date that any debt service or project payments are due, at least the full-year's debt service requirement. Monies must then be deposited into the debt service funds providing the full fiscal year's requirement. After such allocations, the remaining funds are transferred to preservation projects, as delineated in the legislation. For the period after June 30, 2009, the treasurer pays to the trustee from the special account, only the amounts necessary to pay debt service on debt obligations of the trust, up to the annual $98 million allocation, and monies must be applied only to debt service.