MOODY'S DOWNGRADES NEW JERSEY SERIES 2004 CIGARETTE TAX REVENUE BONDS TO Baa3 FROM Baa2; OUTLOOK REVISED TO NEGATIVE FROM STABLE

Posted on: August 16, 2010, 11:46 am

NEW YORK, Aug 16, 2010 -- Moody's Investors Service has downgraded the rating to Baa3 from Baa2 on New Jersey's Cigarette Tax Revenue Bonds, Series 2004, issued through the New Jersey Economic Development Authority (NJEDA), and has revised the outlook to negative from stable. The downgrade and change in outlook affect approximately $1.1 billion of outstanding debt. The bonds are secured by the state's contractual obligation to appropriate for debt service from a dedicated portion of the state's cigarette tax. The downgrade reflects a more rapid decline in cigarette consumption than previously projected, such that pledged revenues stressed by assuming a similar annual decline in revenues as that experienced since 1997 provide less than one times coverage as of 2018. The low investment grade rating factors the state's history of using excess pledged cigarette tax revenue to fund open market purchase and cancellation of outstanding bonds, thereby potentially reducing out-year debt service costs to maintain sum-sufficient coverage further into the future (bonds mature in 2034). Assignment of a negative outlook reflects uncertainty regarding the state's ability to continue this practice, as narrowing margins driven by projected declining cigarette consumption beyond that represented by our stress analysis may limit the state's ability to manage the program in this manner going forward...

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