Fitch Ratings assigns an 'F1+' rating to New Jersey's $2,250,000,000 tax and revenue anticipation notes (TRANs), series fiscal 2011A, selling competitively on Aug. 19, 2010. The notes mature on June 23, 2011.
RATING RATIONALE:
--The TRANs are not general obligations of the state, but payable from available fiscal year (FY) 2011 revenue in the General and Property Tax Relief funds, subject to appropriation which has been made.
--Adequate projected financial cushion exists, with projected June 2011 ending general fund and property tax relief fund balances covering note repayment by 1.2 times (x).
--Executive authority exists to reduce expenditures and borrow from other funds; inclusive of borrowable funds, note repayment is projected to be covered by 1.7x.
--The state sets aside of 75% of note repayments two weeks prior to note maturity, and has covenanted to forecast ending-month cash flows on or before April 15 to ensure compliance with set-aside provisions.
--The state of New Jersey's general obligations (GOs) are rated 'AA', with a Stable Outlook by Fitch, reflecting strong wealth levels, a diverse economy, limited financial flexibility, a high debt burden, and significant long-term liabilities.
KEY RATING DRIVER(S):
--Changes in NJ's credit characteristics or a significant decline in FY 2011 cash flow projections.
SECURITY:
The TRANs are not GOs of the state but payable from available FY 2011 revenue in the General and Property Tax Relief funds, subject to appropriation which has been made.
CREDIT SUMMARY:
The notes are not general obligations of the state, but will be paid from available fiscal 2011 general and property tax relief fund monies. Projected coverage levels, the Treasurer's covenant to review revenues over two months prior to note maturity to ensure compliance with set-aside provisions, and the governor's power to reduce expenditures and borrow from other funds to maintain sufficient cash resources support the 'F1+' rating.
The $2.25 billion now offered matches the amount issued in fiscal 2010 and totals 4.7% of projected cash flow. Funds totaling 75% of the amount due will be set aside two weeks prior to maturity on June 9, 2011; the balance will be set aside on June 22, 2011, one day prior to note repayment. The projected ending cash balance of $522 million on June 30, 2011 provide a thin cash flow safety margin of 1.1%, excluding borrowables, and note repayment is covered by an adequate 1.2x. About $1.14 billion of borrowable resources have been identified by state officials, widening the cash flow safety margin to 3.45% and projected coverage to 1.7x.
For more information on the state of New Jersey, please see the Fitch press release dated Aug. 17, 2010 available at 'www.fitchratings.com'.
Related Research:
'Tax-Supported Rating Criteria', dated Aug. 13, 2010;
'U.S. State Government Tax-Supported Rating Criteria', dated Dec. 28, 2009;
'Rating Municipal Short-Term Debt', dated Oct. 18, 2007.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Additional information is available at 'www.fitchratings.com'.
Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493048
Rating Municipal Short-Term Debt
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=347784
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