New Jersey Cnty School Enhment Prog. Ch. 12 — Moody’s affirms New Jersey’s A3 GO ranking and assigns A3 ranking to Basic Obligation Bonds; outlook secure

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West Sayville-Oakdale Fire District, NY -- Moody's assigns initial Aa3 to West Sayville-Oakdale FD, NY's GOLT Bonds

Rating Action: Moody’s affirms New Jersey’s A3 GO rating and assigns A3 rating to General Obligation Bonds; outlook stableGlobal Credit Research – 09 Apr 2021New York, April 09, 2021 — Moody’s Investors Service has assigned A3 ratings to the State of New Jersey’s $400 million General Obligation Bonds (Various Purposes) (Tax-Exempt). The outlook on the bonds is stable. The bonds are expected to price the week of April 19.Moody’s has also affirmed the A3 rating on New Jersey’s outstanding general obligation debt, and revised the outlook to stable from negative. In addition, Moody’s has affirmed the state’s A3 rated bonds issued by the Garden State Preservation Trust, NJ; the Baa1 and Baa2 rated appropriation backed debt; Baa1 rated moral obligation debt issued by the South Jersey Port Corporation; the Baa1 rated New Jersey County College Enhancement Bond Program Chapter 12; and Baa1 rated New Jersey Municipal Qualified Bond Program and New Jersey Qualified School Bond Program intercept programs, the Baa2 rated Cigarette Tax Revenue Bonds issued by the New Jersey Economic Development Authority (NJ EDA), the Baa1 on the New Jersey Transportation Trust Fund Authority’s (NJ TTFA) Federal Highway Reimbursement Revenue Notes (GARVEEs), and the A3 on New Jersey Transit Corporation’s (NJT) Grant Anticipation Notes, Series 2014A (Federal Transit Administration Section 5307 Urbanized Area Formula Funds) (GARVEEs). The affirmations affect approximately $32.3 billion of outstanding rated debt.The outlooks on all the bonds have been revised to stable from negative. The outlooks on the enhanced financing-level ratings for schools and local governments that issue under the intercept programs match the outlooks on the programmatic ratings.Moody’s has also affirmed the Baa2 (Sr lien) and Baa3 (Sub lien) ratings on New Jersey’s $779 million of outstanding Motor Vehicle Surcharge bonds issued by the NJ EDA. The outlook on the bonds has been revised to developing from negative.Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM907065069 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.RATINGS RATIONALENew Jersey’s A3 general obligation rating reflects the state’s large, diverse and wealthy economy offset by large, growing long-term liabilities and the burden of significantly-increased pension contributions, which are the result of substantial historic pension underfunding. Due to better-than-expected revenue performance, the state will end fiscal 2021 with record-high liquidity and fund balance, but also a large structural budget gap and higher debt and fixed costs related to deficit financing. However, large fund balances, plans to accelerate pension contributions and fund pay-go capital projects, and the recent demonstration of the governor’s broad powers to reduce expenditures mid-year reflect overall increased budget flexibility compared to the beginning of the coronavirus pandemic.Our view incorporates the impact of COVID-19 to date, but the pandemic and its long-term credit implications remain fluid. If our view of the credit quality of rated debt changes, we will update the rating or outlook at that time. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.The A3 rating on the Garden State Preservation Trust bonds is based on the state’s contractual obligation to transfer a constitutionally-dedicated portion of the state-wide sales tax (the first $98 million) to the trust for debt service, subject to annual appropriation. The GO-level rating is supported by the strong legal structure restricting the use of the allocation to debt service and ample coverage provided by the dedicated state-wide revenue source. However, 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 Baa1 ratings on the majority of the state’s appropriation debt and the County College Enhancement Program Chapter 12 are notched off the State of New Jersey’s A3 GO rating, reflecting the strong legal structure, the essential nature of the financed projects and the need for annual legislative appropriation of revenues to pay debt service. A large majority of the state’s net tax-supported debt is subject to appropriation, and the importance of maintaining access to the capital markets provides strong incentive for the state to make these appropriations on essential assets.The Baa2 rating on the state’s appropriation debt issued through the New Jersey Sports & Exposition Authority reflects appropriation risk and the lower essentiality of the racetrack, convention center and stadium projects that were financed with bond proceeds.The Baa1 ratings on the South Jersey Port Corporation senior lien and subordinate lien bonds are notched off the State of New Jersey’s A3 GO rating and reflect the state’s commitment, as established in the corporation’s enabling act and bond resolutions, to consider appropriating funds to replenish the port’s debt service reserve fund (DSRF) to match maximum annual debt service. The state has a strong, demonstrated commitment to making these appropriations, given its 34-year history of replenishing the corporation’s reserve fund; the state’s history of including broad appropriation language in the budget, which is historically adopted well in advance of the corporation’s December 1 request date, and the state’s non-impairment pledge. The state’s replenishment commitment is equivalent for both liens, and state appropriations deposited into the subordinate lien DSRF cannot be transferred to the senior lien DSRF. Nothing requires the legislature to appropriate proportionately to the two liens’ DSRFs. However, the risk of inequivalent appropriations does not warrant a full notch rating distinction.The Baa1 programmatic ratings on the Qualified School Bond Program and the Municipal Qualified Bond Program are notched off the State of New Jersey’s A3 GO rating. The one notch distinction reflects the programs’ strong position in the state’s hierarchy of debt and spending priorities and strong program mechanics, including the direct payment of aid to the debt service trustee.The Baa2 rating on the NJ EDA Cigarette Tax Revenue Bonds reflects the requirement for legislative appropriation of pledged revenues, and a narrow pledged revenue stream that has been steadily eroded by ongoing decreases in cigarette consumption and sales. The rating is also supported by the bondholder protections provided by a closed lien and debt service reserve fund funded at maximum annual debt service (MADS), and a relatively short final bond maturity. The Cigarette Tax Revenue Bonds are rated at the lower of the special tax rating supported by the bonds’ credit fundamentals and the state’s appropriation rating level, due to the requirement that pledged revenues be appropriated by the New Jersey state legislature to pay debt service. The bonds’ credit fundamentals are currently one notch below the state’s appropriation level rating.The Baa2 (Sr) and Baa3 (Sub) ratings on the NJ EDA Motor Vehicle Surcharge bonds reflect the weak pledged revenue trends and debt service coverage, driven by coronavirus related closures of department of motor vehicle (DMV) locations and courthouses. Significant pledged revenue declines starting in November 2020 have lead the Governor to request an appropriation in the general fund budget to support the July 1 debt service payment. Based on the proactive governance demonstrated to date and the state’s strong connection to this contingent liability, we expect the legislature to appropriate for debt service on its bonds in advance of the payment due date. To date, New Jersey has responded to the potential revenue shortfall in a similar manner as would occur with an authorized moral obligation debt of a state.The Baa2 (Sr) and Baa3 (Sub) ratings on the NJ EDA Motor Vehicle Surcharge bonds reflect the weak pledged revenue trends and debt service coverage, driven by coronavirus related closures of department of motor vehicle (DMV) locations and courthouses. Significant pledged revenue declines starting in November 2020 have led the Governor to request an appropriation in the general fund budget to support the July 1 debt service payment. Based on the proactive governance demonstrated to date and the state’s strong connection to this contingent liability, we expect the legislature to appropriate for debt service on its bonds in advance of the payment due date. To date, New Jersey has responded to the potential revenue shortfall in a similar manner as would occur with an authorized moral obligation debt of a state.The Baa2 (Sr) and Baa3 (Sub) ratings on the NJ EDA Motor Vehicle Surcharge bonds also reflect 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 that is somewhat balanced by the statewide tax base and the closed lien. The weaker subordinate lien coverage is somewhat balanced by 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.The Baa1 rating on the NJ TTFA Federal Highway Reimbursement Revenue Notes (GARVEEs) incorporates the appropriation requirement for pledged revenues, satisfactory coverage by pledged federal highway aid, a strong 3x additional bonds test and a requirement that pledged revenues first fulfill all annual debt service requirements, once appropriated. The Baa1 rating also incorporates the relatively long final maturity that spans multiple authorizations of the federal aid highway program and, similar to most GARVEE programs, the lack of structural protection against disruption in federal highway aid, such as a debt service reserve fund. NJ TTFA’s GARVEEs are capped at the same level as the state’s other appropriation debt, due to the requirement that pledged revenues be appropriated by the New Jersey state legislature to pay debt service together with the lack of legal constraints on the use of federal reimbursements. Certain characteristics of the GARVEE credit and structure, including the motivation to maintain the existing federal reimbursement funding and spending cycle, provide the state with a strong incentive to appropriate. Other similarly-structured GARVEE bonds with no requirement for legislative appropriation are rated in the mid- to high A category.The A3 rating on NJT’s Grant Anticipation Notes, Series 2014A is based on NJT’s pledge of all Federal Transit Authority (FTA) Section 5307 grants, which provide solid projected coverage, and a long history of sound grant program management that reinforces timely receipt of pledged revenues. The rating is also supported by satisfactory legal protections including an additional bonds test requiring 150% coverage by the three-year average of grant receipts, and a cash-funded debt service reserve fund sized at 10% of proceeds. NJT has a strategic role in providing important transportation services throughout the state of New Jersey, which supports its strong, stable share of the regional apportionment.RATING OUTLOOKThe revision to the stable outlook reflects better-than-expected revenue performance in fiscal 2021, and the expectation that large resulting fund balances will support budget flexibility through the coronavirus recovery. The stable outlook further reflects our view that the current A3 rating is well positioned for the next 12-18 months as the state continues to manage historic budget challenges, including large structural budget gaps and growing pension contributions.The outlook on all GO-related and notched debt listed above is stable, reflecting the outlook on the state GO. This includes the enhanced financing-level ratings for schools and local governments that issue under the intercept programs.The stable outlook on the NJ EDA Cigarette Tax Revenue bonds reflects our expectation that the current rating incorporates continued declines in cigarette tax revenues that will support satisfactory debt service coverage as both revenues and scheduled debt service decline in coming years.The developing outlook on the NJ EDA Motor Vehicle Surcharge bonds reflects the uncertainty around the pledged revenue recovery and the actions the state will take to support debt service after fiscal 2022 if necessary. Revenue stability and growth, or indications of likely ongoing state support, would provide positive pressure to the outlook, while a lack of both would be negative drivers.The stable outlook on the NJ TTFA GARVEE bonds reflects the state’s general obligation outlook.The stable outlook on the NJT GARVEE bonds reflects the stable outlook on the state’s general obligation rating. The requirement that FTA Reimbursement revenues be annually appropriated by the state legislature links the credit of these bonds to the state’s GO and effectively caps the GARVEE rating.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGSFor the GO rating:- Implementation of structurally balanced actions to close budget gaps- Articulated strategy for sustained full funding of pension contributions- Maintenance of budgetary balances and liquidity above historic averages- Relatively stable debt and pension metrics, and fixed cost increases that remain affordableFor the appropriation-backed and notched debt:- Upgrade of the state’s GO ratingFor the NJ EDA Cigarette Tax bonds rating:- Both significant improvement in pledged revenue performance and upgrade of the state’s G.O. credit ratingFor the NJ EDA Motor Vehicle Surcharge rating:- Upgrade of the GO rating- A sustained increase in pledged revenue collections that bolsters debt service coverage, and/or substantially shortens final maturityFor the NJ TTFA GARVEE rating:- Both an upgrade of the state’s G.O. rating and an increase in MADS debt service coverage- The addition of stronger indenture covenants limiting additional bond issuance- The addition of structural protections to bridge a potential federal authorization gapFor the NJT GARVEE rating:- Both higher MADS coverage and upgrade of the state’s G.O. rating- Enhancements of legal protections such as a higher additional bonds test or a back-up pledge from state-source revenuesFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGSFor the GO rating:- Lower-than-planned pension contributions that do not maintain the 1/10 schedule- Failure to address large structural imbalance with recurring actions- Significantly reduced liquidity levels and/or increased liquidity support (cash-flow borrowing and other cash management tactics)- A significant increase in unfunded pension liabilities or other debt that elevates fixed costsFor the appropriation-backed and notched debt:-Downgrade of the state’s GO rating- Indications that the state’s incentive to make annual appropriations has diminishedFor the NJ EDA Cigarette Tax bonds rating:- Faster-than-projected declines in pledged revenues- Additional tax rate increases or regulatory changes that are expected to further erode cigarette sales- Significant deterioration in the credit quality of the debt service reserve fund GIC providers- Downgrade of the state G.O. rating below Baa2For the NJ EDA Motor Vehicle Surcharge rating:- Either a downgrade of the state or accelerated declines in pledged revenues, beyond current baseline projections, that deteriorate coverageFor the NJ TTFA GARVEE rating:- A downgrade of the state’s G.O. rating- Discontinuation or reduction in federal transportation grant program- Lapse in reauthorization of transportation spending- Sharp decline in underlying HTF revenues caused by economic stress, tax inefficiency or redirection of fuel taxes to general fund- Significant additional leverage that reduces coverage materially from historical levelsFor the NJT GARVEE rating:- A downgrade of the state’s G.O. rating- Increased leveraging or decline in grant apportionments that materially reduces coverage of maximum annual debt service- A discontinuation or significant permanent reduction in the federal transportation grant program- An extended temporary interruption or delay in grants- Sharp decline in underlying HTF revenues caused by economic stress, tax inefficiency or redirection of fuel taxes to general fundLEGAL SECURITYNew Jersey’s G.O. bonds are general obligations of the state, secured by the full faith and credit of the state.The Garden State Preservation Trust bonds are secured by the state’s contractual obligation to transfer a constitutionally-dedicated portion of the state-wide sales tax (the first $98 million) to the trust for debt service, subject to annual appropriation.The state’s various appropriation-backed bonds, including the Chapter 12 intercept bonds, are payable solely from anticipated state payments made pursuant to a contract, lease or funding agreement, subject to annual legislative appropriation. Once the legislature has appropriated the funds, the state’s payment obligations are absolute and unconditional.The South Jersey Port Corp senior and subordinate lien bonds are secured first by a senior and subordinate lien, respectively, on net revenues of the port corporation’s operations. All senior and subordinate bonds are additionally secured by – and primarily paid from – the state’s commitment to annually appropriate amounts sufficient to restore the debt service reserve fund (DSRF) to the required level. The state’s replenishment commitment is equivalent for both liens, and state appropriations deposited into the sub lien DSRF cannot be transferred to the senior lien DSRF. While the state’s replenishment commitment is equivalent for both liens, nothing requires the legislature to appropriate proportionately to the two liens’ DSRFs.The Qualified School Bond Program and the Municipal Qualified Program intercept programs provide credit enhancement to participating schools and municipalities through the diversion of state aid revenues directly to a trustee to ensure timely debt service payments, and thereby prevent debt service obligations from competing with other local expenditure priorities.The NJ EDA Cigarette Tax revenue bonds are secured by a dedicated 65 cents of the state’s $2.70/pack cigarette tax. The Cigarette Tax Securitization Act of 2004 authorized a total of 65 cents of the state’s total cigarette excise tax (currently $2.70 per pack) to be transferred to a Dedicated Cigarette Tax Fund. The contract between the state and NJEDA pledges 100% of these dedicated revenues to repay the bonds. This contractual obligation to repay debt service is subject to annual appropriation by the state legislature.The senior and subordinate lien NJ EDA motor vehicle surcharge 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.The NJ TTFA GARVEE bonds’ source of pledged revenues is Federal Title 23 funding received by the state under the Federal Aid Highway Program, subject to state legislative appropriation. The HTF receives revenues from national excise taxes on gasoline and other vehicle taxes established under periodic reauthorization by Congress. HTF funds are used to reimburse states for eligible road and transportation capital project costs according to formulas that take into account population and other factors.The NJT GARVEE bonds are secured solely by a pledge of federal grants under U.S.C. Section 5307, used to provide capital funding for urban public transportation systems. Receipt of the grants is subject to annual appropriation by both the US Congress and the State of New Jersey. There is no bondholder recourse in the event of non-appropriation by either the Federal government or the state, or in the event that the FTA does not apportion or remit to NJT grants that have been appropriated.USE OF PROCEEDSGeneral Obligation Bonds (Various Purposes)(Tax-Exempt) will finance various capital projects in the state, including water supply and quality projects, grants and loans for local infrastructure projects and local land preservation, library construction and renovation projects, and capital projects for K-12, vocational schools and county colleges.PROFILENew 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).METHODOLOGYThe principal methodology used in the general obligation ratings was US States and Territories published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1084466. The principal methodology used in the special tax ratings was US Public Finance Special Tax Methodology published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1260087. The principal methodology used in the appropriation, moral obligation bonds and NJ County College Enhancement Program Chapter 12 was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1260202. The principal methodology used in the intercept programs was State Aid Intercept Programs and Financings published in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1067422. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.REGULATORY DISCLOSURESThe List of Affected Credit Ratings announced here are all solicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBM_PBM907065069 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody’s disclosures on the following items:- Rating Solicitation- Issuer Participation- Participation: Access to Management- Participation: Access to Internal Documents- Disclosure to Rated Entity- EndorsementFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.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. 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