NEW YORK, June 9 (Reuters) - New Jersey may have to pay interest rates as high as 11.5 percent through Dec. 31 on a $2 billion credit line supplied by JPMorgan Chase if the state fails to sell short-term notes to repay the loan, a spokesman for the state treasurer said on Tuesday.
New Jersey lined up the credit from JPMorgan because its tax revenues have tumbled with the recession.
The state, along with many others, usually sells short-term notes to carry it over the end of one budget on June 30 and into the next. But this time around, New Jersey will not have a big enough cash cushion to tide it over.
New Jersey selected JPMorgan, which bid 150 basis points over the three-month London interbank offered rate, , partly because the bank is putting the entire loan on its balance sheet.
JPMorgan says demand from states and cities for similar loans have led it to expand this business.
Thomas Vincz, the treasurer's spokesman, expressed confidence that the state will not get stuck with high rates because the short-term notes will be sold on time.
'All of this will be moot when we go to the market before September 30, 2009,' Vincz said by e-mail, noting the state sold $1.8 billion of notes last year 'right after Labor Day.'
New Jersey Republican state senators seized on the risk of higher interest rates to bash Democratic Governor Jon Corzine, who is running for a second term in November.
'If the state can't sell notes, it could cost taxpayers up to $300 million because of this clause in the loan agreement,' Senator Kevin O'Toole said in a statement. 'The governor should have been open and transparent with the taxpayers of the state about this deal as he promised,' O'Toole said.
All of the terms for JPMorgan's proposal were still pending, Vincz added.
(Additional reporting by Elinor Comlay)
(Reporting by Joan Gralla in New York; Editing by Jan Paschal) Keywords: NEWJERSEY CREDIT/ (E-mail: joan.gralla@thomsonreuters.com; Tel: +1-646-223-6345; Reuters Messaging: joan.gralla@thomsonreuters.com ) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
New Jersey lined up the credit from JPMorgan because its tax revenues have tumbled with the recession.
The state, along with many others, usually sells short-term notes to carry it over the end of one budget on June 30 and into the next. But this time around, New Jersey will not have a big enough cash cushion to tide it over.
New Jersey selected JPMorgan, which bid 150 basis points over the three-month London interbank offered rate, , partly because the bank is putting the entire loan on its balance sheet.
JPMorgan says demand from states and cities for similar loans have led it to expand this business.
Thomas Vincz, the treasurer's spokesman, expressed confidence that the state will not get stuck with high rates because the short-term notes will be sold on time.
'All of this will be moot when we go to the market before September 30, 2009,' Vincz said by e-mail, noting the state sold $1.8 billion of notes last year 'right after Labor Day.'
New Jersey Republican state senators seized on the risk of higher interest rates to bash Democratic Governor Jon Corzine, who is running for a second term in November.
'If the state can't sell notes, it could cost taxpayers up to $300 million because of this clause in the loan agreement,' Senator Kevin O'Toole said in a statement. 'The governor should have been open and transparent with the taxpayers of the state about this deal as he promised,' O'Toole said.
All of the terms for JPMorgan's proposal were still pending, Vincz added.
(Additional reporting by Elinor Comlay)
(Reporting by Joan Gralla in New York; Editing by Jan Paschal) Keywords: NEWJERSEY CREDIT/ (E-mail: joan.gralla@thomsonreuters.com; Tel: +1-646-223-6345; Reuters Messaging: joan.gralla@thomsonreuters.com ) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.