The bond sale is the largest to date for the program, which was authorized by Congress in the recent fiscal stimulus package. It's designed to help municipalities issue debt in the taxable bond market and access a broader pool of investors that usually focus on Treasurys, mortgages and corporate debt.
Local governments typically issue tax-exempt securities, which appeal to a much smaller group of buyers.
The Turnpike's deal ballooned from an estimate of $250 million just last week, as investor demand for Build America Bonds swelled.
The BABs program, while still very new, has been advantageous for the issuers and drawn plenty of demand from investors.
"For taxable buyers, the municipal credits look very attractive," said Mike Bouscaren, a senior market strategist at Thomson Reuters. At the same time, "municipal issuers are finding much lower interest costs" when the federal subsidy is factored in.
California is expected to bring a multi-billion dollar taxable bond deal this week, and the New York Metropolitan Transportation Authority is also planning to tap the market.
The New Jersey Turnpike sold the 30-year bonds to yield 7.40%, according to analysts. The yield is about 3.70 percentage points more than 30-year Treasury bonds.
By comparison, corporate bonds yield more than 5 percentage points more than Treasurys, according to an index compiled by Merrill Lynch.
Under the program, the federal government will reimburse the agency for 35% of the interest, meaning the authority will only end up paying interest of 4.81%, according to data compiled by Thomson Reuters.
That's less than the yield on some of the authority's tax-exempt debt, making it cheaper to finance projects that it hopes, in line with the federal plan, will boost the economy.
Still to come this week, California is expected to sell about $4 billion in taxable debt, including an unspecified amount of BABs.
The New York MTA plans to issue $250 million in Build America Bonds, a little more than originally stated, and possibly pricing on Thursday, according to an MTA spokesman. The debt, secured by dedicated taxes subject to state appropriations, will help finance existing capital projects for the massive transit and commuter rail system.
Next month may bring several billion dollars in debt from Puerto Rico, which has regularly issued tax-exempt debt, Bouscaren said.
Minnesota's 'perfect' deal
Last week, the University of Virginia sold $250 million in BABs, even though it received more than five times that amount in orders, the school said in a release.
The AAA-rated university's bonds sold at 6.222%. After the federal subsidy, the school's rate will be 4.04%, well below its tax-exempt bond yields, saving them $60 million in interest over the life of the debt.
Also, the University of Minnesota sold $37 million in Build America Bonds on April 15, attached to a larger tax-exempt bond sale. The long-term general obligation BABs, meaning they are backed by the full faith and credit of the university, yield 6.38%.
Read previous story on Build America Bonds.After the federal tax credit, the interest rate for the issuer comes down to 4.22%, saving $2.7 million over the life of the debt.
"It worked perfectly for us," said Richard Pfutzenreuter, the university's chief financial officer. The deal priced for even better savings than the school was anticipating, and also received bids for more debt than was for sale.
The proceeds will be used to buy land, construct buildings and acquire equipment, benefiting at least three of the system's campuses.
"It was very easily done and oversubscribed," Pfutzenreuter said. The university issues debt about twice a year and will consider selling Build America Bonds at its next offering in late fall.
Deborah Levine is a MarketWatch reporter, based in New York.
