Aa3 RATING APPLIES TO $1.1 BILLION OF OUTSTANDING TRUST BONDS
New York, April 12, 2012 -- Moody's Rating
Issue: Open Space and Farmland Preservation Refunding Bonds,
Series 2012A; Rating: Aa3; Sale Amount: $285,030,000;
Expected Sale Date: 4/18/2012; Rating Description: Lease
Rental: Appropriation
Opinion
Moody's Investors Service has assigned a Aa3 rating to New Jersey's
$285 million Open Space and Farmland Preservation Bonds,
2012 Series A issued by the Garden State Preservation Trust ("the
trust"). Moody's has also affirmed the Aa3 rating on
the $1.1 billion of outstanding parity bonds issued through
the trust. The rating outlook is stable. The 2012 Series
A bonds will refund outstanding trust bonds for an estimated net present
value savings of $22.8 million (8.3% of refunded
par), which will be front loaded in the first two years, with
no extension of maturity.
SUMMARY RATINGS RATIONALE
The Aa3 rating is based on the state's contractual obligation to transfer
a constitutionally-dedicated portion of the state-wide sales
tax to the trust for debt service, subject to annual appropriation.
The constitution dedicates the lesser of an amount equivalent to debt
service or $98 million of the state sales and use tax to debt service
on bonds issued by the trust. While the allocation is subject to
appropriation, risk of non-appropriation is mitigated by
the constitution and subsequently-adopted legislation restricting
the use of the allocation to debt service payment of these bonds.
While the strength of the dedication supports a rating equivalent to state's
general obligation rating (Aa3), the rating is capped at the state's
GO due to the lack of structural and mechanical separation of the dedicated
revenue stream from the state's General Fund and the technical requirement
for annual appropriation.
The Aa3 general obligation rating reflects the state's relatively weak
financial position and the expectation that recovery will be unlikely
in the medium term due to rapidly rising fixed costs, relatively
slow economic recovery, and lack of a specified plan to rebuild
fund balances. In addition, pension and other post-employment
benefit (OPEB) liabilities will continue to grow rapidly, further
pressuring the already high-debt state. Revenue growth will
be moderate, as economic recovery is projected to lag the nation.
There is no specific plan to rebuild liquidity and fund balance.
The Aa3 rating also incorporates the state's broad, diverse economy
and high resident wealth levels, as well as the governor's broad
powers to reduce expenditures.
STRENGTHS:
* Constitutional dedication of funds for trust's open space program
is strongly worded, including direction to use funds for bond payments
and prohibition on use for any other state purposes
* Annual state sales tax collections of $7.8 billion
in fiscal 2011, provides strong protection against revenue volatility
* Only other sales tax constitutional dedication at present is limited
to $200 million for the Transportation Trust Fund Authority
CHALLENGES:
* Bond payment depends on annual legislative appropriation of contract
payments to the trust, with no substantive remedies available in
the (highly unlikely) event of an appropriation failure
* Dedicated revenues remain in the General Fund, although credited
to a separate account, until the treasurer transfers funds to the
trustee on the first debt service date
*Coverage could be diluted by additional voter-approved debt,
given the open-lien indenture, or by
additional voter-approved sales tax dedications
Outlook
The rating outlook for the trust's bonds is stable, reflecting the
stable credit outlook assigned to the State of New Jersey's G.O.
bonds. New Jersey's credit outlook is stable, reflecting
our expectation that recent revenue growth signals some economic stabilization;
a decreased reliance on one-time resources to balance the fiscal
2012 budget; and the state's proactive measures to curb long-term
liability growth, including pension and OPEB reforms and a proposed
increase in TTFA pay-go capital funding to reduce long-term
borrowing needs.
WHAT COULD MAKE THE RATING GO UP
-- Higher-than-projected, sustained
revenue growth that materially eases the budgetary pressure of growing
fixed costs
-- Sustained progress in structurally balancing the state's
budget, including full funding of all pension and OPEB pay-go
costs, together with restoration and maintenance of financial reserves
and liquidity
-- Reduction in the state's debt burden, while addressing
pension and retiree health benefit funding
-- Adoption and implementation of policies and practices
generally used by the best-rated credits, such as multi-year
financial planning and debt affordability analysis
WHAT COULD MAKE THE RATING GO DOWN
-- Slower-than-projected revenue growth that
increases budgetary pressure
-- Failure to restore operating reserves or GAAP fund balances
and liquidity position
-- Significant increase in the state's debt position
-- Growing dependence on nonrecurring budget solutions,
particularly in light of uncertain measures in fiscal 2012 budget and
rapidly growing pension and OPEB costs
-- Economic recovery that materially lags the nation
The principal methodology used in this rating was Moody's State Rating
Methodology published in November 2004. 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.
Baye B. Larsen
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
Edward Hampton
Vice President - Senior Analyst
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 Aa3 RATING TO NEW JERSEY'S GARDEN STATE PRESERVATION TRUST'S $285 MILLION OPEN SPACE AND FARMLAND PRESERVATION REFUNDING BONDS, 2012 SERIES A
