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New Jersey Economic Development Authority's Cigarette Tax Revenue Bonds Rating Placed On Negative CreditWatch
NEW YORK Sept. 12, 2006--Standard & Poor's Ratings Services today placed its 'BBB' rating on New Jersey Economic Development Authority's series 2004 cigarette tax revenue bonds on CreditWatch with negative implications due to a change in law that could affect the cash flow on the bonds.
The fiscal 2007 state budget increased the cigarette tax and also increased the amount of cigarette tax revenues that must first flow into the state's health care subsidy fund to $365 million from $150 million; these actions are not revenue-neutral. Once the health care subsidy fund is fully funded, the remaining cigarette tax revenues then flow into the dedicated cigarette tax revenue fund in support of these series 2004 bonds.
"Due to the first-dollar designation of the increased health care subsidy fund, it is currently unclear whether sufficient funds will be available from current revenues to cover the next debt service payment on the bonds in December," said Standard & Poor's credit analyst Rich Marino. "However, a fully funded debt service reserve is available to cover the payment if necessary."
In addition, the effect this increase to $365 million will have on the various debt service coverage analyses performed when the bonds were initially rated is uncertain, as our prior cash flow analysis incorporated only $150 million of the cigarette tax not being available to support debt service. Decreased debt service coverage is now a possibility.
"We will continue to monitor the credit effects of this change in law, and are in the process of reviewing the cash flows," said Mr. Marino. "The rating could be lowered or maintained based on the effects the law has, or doesn't have, on cash flow."
The CreditWatch placement affects $1.46 billion of debt.
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