The New Jersey Turnpike Authority, which gives about $26 million a year to the state’s transport budget, is selling $1.5 billion in Build America Bonds, the week’s largest offering, as increased sales of the taxable debt pushed yields to the highest in almost eight months.
States and local governments are set to sell about $12.6 billion in debt this week, including $4.2 billion in Build Americas, both the highest in three weeks, according to data compiled by Bloomberg. The program, scheduled to expire Dec. 31, provides a 35 percent federal interest-rate subsidy to issuers.
With supply surging, average yields on the bonds climbed to 6.26 percent on Dec. 3, the highest since April 8, according to the Wells Fargo Build America Bond index. Even amid the glut, the size of the deal and the reliability of the revenue stream may entice investors, said Mike Pietronico, chief executive officer of Miller Tabak Asset Management in New York.
“To get north to south in New Jersey you almost have to take the Turnpike by car,” said Pietronico, who oversees $345 million in municipal assets. “It’s a solid credit and will see some decent demand.”
The authority, which runs the 122-mile (196-kilometer) New Jersey Turnpike and 173-mile Garden State Parkway, is rated A3 by Moody’s Investors Service, its fourth-lowest investment grade, A by Fitch Ratings, fifth-lowest, and A+ by Standard & Poor’s, sixth-lowest.
Moody’s assigned a negative outlook in its rating report, its first by a ratings company since Fitch lowered its outlook from stable in 2004.
A one-year extension to the U.S. Build America Bond program was included in a Senate bill to continue the tax cuts for middle-income Americans, enacted during President George W. Bush’s first term. The bill was quashed in procedural votes over the weekend.
U.S. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, included the provision along with dozens of other tax breaks set to end. A continuation of the bond program hadn’t been contained in previous bills to prolong the income- tax cuts, the dominant issue facing Congress before the current session concludes.
The Build America program was created under President Barack Obama’s economic-stimulus program. More than $173 billion of the taxable securities have been sold, Bloomberg data show. The subsidy would have been scaled back to 32 percent under the Senate bill.
“The BAB’s program is set to expire on Dec. 31, and the authority wants to avail itself of the 35 percent BAB’s subsidy,” Tom Feeney, a spokesman for New Jersey’s Turnpike agency, said in an e-mail.
The agency’s sale equals the second-biggest offering of Build Americas this year. The Bay Area Toll Authority and the Texas Transportation Commission sold $1.5 billion in June and July, respectively. California sold $3.3 billion last month.
The turnpike authority’s previous Build America sale was an almost $1.4 billion offering in April 2009. Bonds due in January 2040 were priced to yield 7.41 percent, or 370 basis points above U.S. Treasuries maturing in May 2038. The securities traded Dec. 2 at an average yield of 6.22 percent, a so-called spread of about 185 basis points above the federal debt. A basis point is 0.01 percentage point.
“They come down on the side of being able to benefit due to their size,” Miller Tabak’s Pietronico said. Even if Congress doesn’t extend the Build America program, the turnpike issue “might have some scarcity factor and retain its value,” he said.