NJ Transportation Agency Raises $3.2 Billion in Muni Sale Surge

(Bloomberg) - A New Jersey agency that finances road, bridge and mass transit infrastructure, joined the debt spree spurred by municipal issuers rushing to raise cash before the Nov. 5 US election.

Most Read from Bloomberg

The New Jersey Transportation Trust Fund Authority sold $3.2 billion in tax-exempt and taxable bonds Thursday to refinance its higher cost debt. The authority is fine-tuning its obligations as the state's finances improve despite a turbulent year for NJ Transit riders who have been bombarded with service meltdowns and disruptions.

The deal comes amid a surge in municipal bond sales, as borrowers seek to lock in financing ahead of a potential uptick in market volatility ahead of the US presidential election. The new bonds are backed by appropriations from lawmakers and carry an A rating from Fitch Ratings and an A- rating from S&P Global Ratings Inc., one level lower than their respective grades on New Jersey's general obligation debt.

All three credit ratings companies recently upgraded New Jersey debt as a surge in income tax collections following the pandemic and an influx of federal aid helped to stabilize the budget. A recent increase to New Jersey's gas tax and a new $250 registration fee on electric vehicles will also bolster state coffers.

The state's pensions are about 40.3% funded as of 2023, an improvement from 33.3% in 2019, according to Fitch.

"They've bought down debt substantially and they brought down their pension burden substantially," said Doug Offerman, a Fitch analyst. "Their liabilities are still a challenge, they're still elevated for a state, but they've made substantial progress."

To place the bonds, underwriter Bank of America Corp. priced 10-year debt with yields about 69 basis points above the benchmark, according to data compiled by Bloomberg.

The deal features a buyback, also known as a tender, which was recently offered to investors. Such transactions have ticked up in recent years as issuers seize on a stabilizing rate environment, according to Dora Lee, research director at Belle Haven Investments.

"The interest rates have to align to make sense of the refunding. So it's a very fleeting moment," she said. Tenders are often used as a refinancing tactic, allowing a municipality to swap out expensive debt for new bonds with lower interest rates.

The offering comes under the support of the Transportation Trust Fund, which was renewed in March, and provides the agency with nearly $9 billion of bonding authority and $1.5 billion in spending. The bulk of that is expected to be spent on aging infrastructure after decades of underinvestment that have continuously upended commutes along the busiest rail corridor in the country.

The reauthorization also boosted annual payments for NJ Transit capital projects to $813 million from about $770 million.

Most Read from Bloomberg Businessweek