New Jersey Sells $525 Million of Bonds to Bank of America

New Jersey sold $525 million of tax-free debt to Bank of America Merrill Lynch, in its first issue of general-obligation bonds in 19 months.

Bank of America Merrill Lynch beat out seven banks to take the competitive offer, according to the state’s Treasury Department. Obligations maturing in June 2025 priced to yield 2.75 percent, or 0.51 percentage point more than benchmark munis, data compiled by Bloomberg show. In comparison, the yield spread was 0.09 percentage point for 10-year debt in the state’s previous long-term general-obligation sale in May 2013.

Andrew Sidamon-Eristoff, the state treasurer, declined to comment on the sale.

Since May 2013, the state’s credit grade has been cut by the three biggest rating companies. Chris Christie in September got his eighth downgrade, the most for a New Jersey governor, amid revenue shortfalls and rising pension and benefit costs.

The bonds sold today include $450 million to build college classrooms and labs for science, technology, engineering and math programs. The balance is for environmental projects.

Christie, a 52-year-old Republican in his second term, campaigned for the $750 million Building Our Future Bond Act, as did Senate President Steve Sweeney, a Democrat. They have said college projects would lead to construction jobs and attract students, a boost for a state that lags behind the U.S. and its neighbors in recovery from the 18-month recession that ended in June 2009.

Bond Load

New Jersey requires voter approval to issue general-obligation bonds, which are backed by the state’s taxing power. The state had about $35 billion of bonds as of June 2013, including $2.4 billion of general obligations, according to its most recent debt report.

The general obligations are rated A1 by Moody’s Investors Service, the fifth-highest investment grade, and A, one step lower, by Standard & Poor’s.

Fitch Ratings, which has an A rating and a negative outlook on New Jersey, said its grade reflects “severe pension challenges.”

New Jersey’s pension system has enough assets to cover 32.6 percent of projected liabilities as of June 30, according to a bond-offering supplement released Nov. 25. That compared with 54.2 percent a year earlier.

The lower ratio is because of new Governmental Accounting Standards Board rules that change how states must calculate underfunding. New Jersey was the first to disclose the numbers under the new requirement, Fitch said in a Nov. 25 report.

Zia Ahmed, a spokesman for Charlotte, North Carolina-based Bank of America, didn’t have an immediate comment on the sale.

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