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Rating Action:

Moody's assigns Baa2 to NJ's $575M Motor Veh. Surcharge Sub bonds, affirms Baa1 on Sr bonds; outlook stable

Global Credit Research - 28 Aug 2017

New York, August 28, 2017 -- Issue: Motor Vehicle Surcharges Subordinate Revenue Refunding Bonds, 2017 Series A; Rating: Baa2; Rating Type: Underlying LT; Sale Amount: $546,425,000; Expected Sale Date: 08/30/2017; Rating Description: Special Tax: Transportation-Related;

Issue: Motor Vehicle Surcharges Subordinate Revenue Refunding Bonds, 2017 Series B (Federally Taxable); Rating: Baa2; Rating Type: Underlying LT; Sale Amount: $28,495,000; Expected Sale Date: 08/30/2017; Rating Description: Special Tax: Transportation-Related;

Summary Rating Rationale

Moody's Investors Service has assigned an initial Baa2 rating to the $546 million Motor Vehicle Surcharges Subordinate Revenue Refunding Bonds, 2017 Series A & $28 million Motor Vehicle Surcharges Subordinate Revenue Refunding Bonds, 2017 Series B (Federally Taxable), issued by the New Jersey Economic Development Authority. Moody's has also affirmed the Baa1 on the outstanding Motor Vehicle Surcharges Revenues bonds, the unrefunded portion of which will become the senior lien post-transaction. The outlook on the bonds is stable.

The Baa1 rating on the senior lien bonds reflects i) the need for legislative appropriation of pledged revenues and ii) relatively weak pledged revenue fundamentals including a very narrow revenue base and steadily declining revenue trend. Given the appropriation requirement, these special tax bonds will not be rated higher than the state's other appropriation debt. Revenue weaknesses are somewhat balanced by the strong statewide base for levying motor vehicle fines, the closed lien, and adequate senior lien coverage that remains resilient through reasonable stress scenarios. The senior lien bonds are also supported by the relatively short final maturity (in fiscal 2027) post-refunding.

The Baa2 rating on the subordinate lien bonds is based on the additional revenue risk due to subordination and weaker aggregate coverage levels. The weaker subordinate lien coverage is somewhat balanced by the closed lien, the turbo feature on the last five maturities that will likely decrease future debt service and reduce revenue risk, as well as an Advance Account that provides liquidity against a timing mismatch between revenue collection and debt service payments.

Rating Outlook

The outlook on the bonds is stable, reflecting the outlook on the state. The state's stable outlook reflects that the current A3 GO rating is well positioned for the next 12-18 months due to solid economic performance and the expectation that any fiscal 2017 budget gaps will remain manageable. However, in the longer term, the state's credit profile will continue to weaken as large long-term liabilities grow and the state's budget is challenged by growing pension contributions in a low revenue growth environment.

Factors that Could Lead to an Upgrade

An upgrade of the state

A sustained increase in revenue collections that bolsters debt service coverage, and/or substantially shortens final maturity

Factors that Could Lead to a Downgrade

A downgrade of the state

Accelerated declines in pledged revenues, beyond current baseline projections, that deteriorate coverage

Legal Security

The senior and subordinate lien bonds are secured by motor vehicle surcharges and unsafe driver surcharges, subject to legislative appropriation. After appropriation, the pledged revenues will be transferred monthly to the EDA by the state Treasurer pursuant to state statute and a contract between the two parties.

Use of Proceeds

Bond proceeds will refund a portion of the Motor Vehicle Surcharge bonds (senior lien) into a new subordinate lien resolution, for estimated net present value savings that the state will take upfront in the first year for budgetary relief.

Proceeds of the Motor Vehicle Surcharges Revenue Bonds originally financed loans and grants to governmental, not-for-profit, and private developers to provide permanent housing and community residences for individuals with special needs and mental illness. Bond proceeds also supported state General Fund operations and capital improvements to the Motor Vehicle Administrative Office of the Courts.

Obligor Profile

New Jersey's A3 GO rating is based on the state's weak budgetary condition and liquidity position, structural imbalance due to large pension contribution shortfalls, a moderately growing economy, and high debt position, including its growing unfunded pension liability. The A3 rating also incorporates New Jersey's diverse economy and high wealth levels, as well as the governor's broad powers to reduce expenditures.

New Jersey is the 11th largest state by population in the United States. Its gross domestic product per capita ranks 8th among the states (in current dollars).

Methodology

The principal methodology used in this rating was US Public Finance Special Tax Methodology published in July 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Regulatory Disclosures

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Baye Larsen
Lead Analyst
State Ratings
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Marcia Van Wagner
Additional Contact
State Ratings
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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