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Related Issuers
Rating Action:

Moody's assigns MIG 2 rating to New Jersey's $2.6 billion of Tax and Revenue Anticipation Notes, Series Fiscal 2013C

Global Credit Research - 05 Nov 2012

New York, November 05, 2012 --

Moody's Rating

Issue: Tax and Revenue Anticipation Notes, Fiscal Series 2013C; Rating: MIG 2; Sale Amount: $2,600,000,000; Expected Sale Date: 11/15/2012; Rating Description: Note: Tax and/or Revenue Anticipation

Opinion

Moody's Investors Service has assigned a MIG 2 rating to the State of New Jersey's $2.6 billion Tax and Revenue Anticipation Notes, Series Fiscal 2013C. Proceeds of the notes, scheduled for sale on November 15, will fund seasonal cash-flow imbalances in the General Fund and the Property Tax Relief Fund (PTRF) and redeem notes sold privately to an investment bank earlier this fiscal year. The new notes are fixed-rate obligations payable from General Fund and PTRF amounts attributable to fiscal 2013 and legally available. These notes do not carry the state's general obligation pledge.

SUMMARY RATING RATIONALE

The second-highest note rating indicates a strong short-term credit quality, based on New Jersey's long history of successful, annual cash-flow borrowings, conservative forecasting, cash-management requirements embedded in the legal documents, executive authority to withhold expenditures of funds appropriated for other purposes and the availability of borrowable resources outside the state's operating funds. The state's liquidity, however, has declined in recent years. Available resources outside the general fund are lower than they have been in advance of any New Jersey note sale in the past five years, and the state's projected year-end cash balance has also declined substantially from the level anticipated a year ago. This leaves the state a narrow margin for error in the event that projected revenues fall short, or if expenditures escalate. The rating was based on cash-flow projections devised prior to Hurricane Sandy, and the state has not revised its projections since the disaster. The state may face increased pressures as it recovers, and the rating captures the potential for modest reductions in the state's projected ending balance or need for issuance of notes on parity with the current issue. Bond documents include provisions for advance set-asides of funds for principal and interest repayment, but the final set-aside is required to be made only the day before the notes' maturity. New Jersey has a long-term, general obligation rating of Aa3 with a stable outlook. The rating on the current issue will not necessarily be linked to any potential changes in the state's long-term rating.

STRENGTHS

-- Contractual obligation to monitor liquidity and set aside funds for repayment before maturity

-- Some additional liquidity expected outside the General Fund and PTRF

-- Record of successful short-term borrowing and strong cash-management procedures

CHALLENGES

--Declining liquidity indicated by reduced projected funds available after note repayment and lower aggregate balance of other available funds

-- Receipts year-to-date are somewhat below budget and could pressure liquidity if the trend continues

-- Final note repayment set-aside is only one day before maturity

WHAT COULD MAKE THE RATING GO UP

--Significant revenue over-performance in the next few months, leading to much improved projected ending balances

WHAT COULD MAKE THE RATING GO DOWN

-- Further revenue underperformance, without being offset by expenditure reduction, causing the state to delay certain payments across fiscal years

-- Sizable mid-year gaps and cash imbalances appearing later in the year without action taken by the state to address them

RATING METHODOLOGY

The principal methodology used in this rating was Short-Term Cash Flow Notes published in May 2007. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, and confidential and proprietary Moody's Analytics' information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Edward Hampton
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Emily Raimes
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns MIG 2 rating to New Jersey's $2.6 billion of Tax and Revenue Anticipation Notes, Series Fiscal 2013C
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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