New Jersey’s efforts to reduce long-term obligations, especially pension liabilities, resulted in good news for the Garden State, as it received a second rating upgrade ahead of next week’s sale of more than $1 billion of school bonds.
Fitch Ratings raised New Jersey’s issuer and general obligation bond ratings on Tuesday to A-plus from A and revised its outlook to stable from positive ahead of the state Economic Development Authority’s sale of $1.1 billion of school facilities construction bonds.
Bloomberg News
Fitch said the upgrade reflects its view the state has “effectively used the fiscal momentum of recent years to accelerate progress on its long-term fiscal and liability challenges. Solid economic performance matched by robust revenue growth have helped New Jersey to shrink its liabilities.”
Approximately $5 billion of outstanding GO debt is affected by Tuesday’s action.
The NJEDA deal consists of $804.1 million of series 2023 RRR school facilities construction refunding bonds and $254.7 million of forward delivery Series 2024 SSS school facilities construction refunding bonds. The refunding bonds are expected to be priced on Thursday, April 20.
“Like Moody’s just a few days ago, Fitch has recognized our focus on paying our obligations as we go,” Gov. Phil Murphy said. “By making the full pension payment for the third year in a row and dedicating more money to reducing our debt, we have signaled that the days of ignoring our long-term commitments in favor of short-term benefits are over.”
New Jersey has solid wealth and income indicators and has diversified its economy over the years, said John Hallacy, founder of John Hallacy Consulting LLC.
“The most positive steps that have been taken of late have been the paying down of long-term obligations including pensions,” Hallacy told The Bond Buyer. “The balance sheet is also stronger than it has been in the recent past.”
However, Fitch noted, despite recent improvement, high liabilities and elevated carrying costs are likely to remain a longer-term constraint on the state’s budget choices.
“Although the durability of recent fiscal improvements remains untested, New Jersey’s credit quality will continue to benefit from inherent strengths including its very high wealth and the broad budget management prerogatives common to states,” Fitch said.
Additionally, Fitch upgraded the following ratings, which are linked to or capped by the state’s IDR: $413 million Garden State Preservation Trust revenue bonds to A-plus from A; the qualified bond program and school bond credit enhancement program (Chapter 72) to A from A-minus; and $27.1 billion in appropriation obligations issued by state authorities to A from A-minus.
Moody’s Investors Service upgraded the state’s issuer and GO ratings to A1 from A2 on Thursday.
Moody’s said its upgrade “incorporates a solid economic recovery, with job gains leading the region and driving employment above the state’s pre-pandemic peak.”
Moody’s said its upgrade was supported by the state’s commitment to full, actuarial pension contributions through fiscal 2024 and its additional allocations of funds to a program to defease debt and cash-fund capital projects.
“With our fifth rating upgrade in just over a year, the ratings agencies have signaled that New Jersey is back on a steady financial course,” said Treasurer Elizabeth Maher Muoio. “It’s more clear than ever that the moves we’ve made to pay down our debt, increase our surplus, and make our required pension payments are paying off.”
S&P Global Ratings assigns an A-minus rating with a positive outlook to the state while Kroll Bond Rating Agency assigns an A rating with a positive outlook.
Last March, Moody’s had upgraded the state’s GOs to A2 from A3 and was followed closely by S&P, which upgraded its rating on the state to A-minus from BBB-plus.