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New Jersey Transportation Trust Fund Auth. — Moody’s assigns Baa1 to New Jersey Transportation Trust Fund Authority’s 2022 Series BB bonds; outlook positive

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Rating Action: Moody’s assigns Baa1 to New Jersey Transportation Trust Fund Authority’s 2022 Series BB bonds; outlook positiveGlobal Credit Research – 07 Jan 2022New York, January 07, 2022 — Moody’s Investors Service has assigned a Baa1 rating to the New Jersey Transportation Trust Fund Authority’s (“TTFA”) planned $750 million of Transportation Program Bonds, 2022 Series BB, which are expected to be priced during the week of January 17. The rating outlook is positive.RATINGS RATIONALEThe Baa1 rating, one notch down from New Jersey’s A3 general obligation bond rating, is based on a moderate legal structure that requires annual legislative appropriation of contract payments for TTFA debt service. Contract payments to the TTFA are supported by specific state tax sources dedicated by statute and constitution to transportation. The essentiality of TTFA-financed projects, the dedication of revenue to transportation and the importance of maintaining market access create strong incentives for annual appropriation by the legislature. However, bondholders do not have a direct lien on dedicated revenue, and there are no remedies in the event of non-appropriation.New Jersey’s A3 general obligation rating reflects the state’s large, diverse and wealthy economy, strengths that are offset by sizable long-term liabilities and the burden of very large pension contributions, which are the result of substantial historic pension underfunding. The state has responded to improved revenue and liquidity prospects with several actions that more aggressively address the state’s liability burdens, signaling improved fiscal governance and management. These measures include debt reduction and avoidance as well as acceleration of pension contributions. However, increased spending on recurring programs in fiscal 2022, including education, creates structural budget gaps that make the state vulnerable to budget risks in a period of continued uncertainty and may challenge the state’s ability to stay on a favorable trajectory.RATING OUTLOOKThe state’s positive outlook is consistent with a strengthened financial position and improved governance, which will enhance budget flexibility. During the next two fiscal years, a key rating consideration will be continuation of governance and financial improvements that restore structural budget balance.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGSFor the GO rating:- Implementation of structurally balanced actions to close budget gap- Articulated strategy for sustained full funding of pension contributions- Maintenance of budgetary balances and liquidity above historic averages- Relatively stable debt and pension metrics, and fixed cost increases that remain affordableFor the appropriation-backed debt:- Upgrade of the state’s general obligation bond ratingFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGSFor the GO rating- Lower-than-planned pension contributions- Failure to address large structural imbalance with recurring actions- Significantly reduced liquidity levels and/or increased liquidity support (cash-flow borrowing and other cash management tactics)- A significant increase in unfunded pension liabilities or other debt that elevates fixed costsFor the appropriation-backed debt:- Downgrade of the state’s general obligation bond ratingLEGAL SECURITYThe TTFA’s bonds are secured by the state’s commitment to make contract payments, subject to annual legislative appropriation. The state makes contract payments to the authority from the Transportation Trust Fund (TTF) account of the general fund. Separate TTF accounts are funded only with constitutionally dedicated revenues for Transportation Program bonds and with statutorily and constitutionally dedicated revenues for Transportation System bonds. Bondholders have no direct lien on any of the dedicated revenues, and the legislature has no legal obligation to appropriate funds to the authority. In the event of a failure by the legislature to appropriate sufficient funds for debt service, bondholders have no substantive remedies.The constitutional dedication of revenues and the essentiality of transportation infrastructure projects to the state provide strong incentive to appropriate for debt service. In addition, approximately 79% of New Jersey’s net tax-supported debt is subject to appropriation. The importance of maintaining access to the capital markets also provides incentive to make timely appropriations. The bond resolution does not require a debt service reserve, but debt service payment dates in December and June mitigate risk from delayed budget adoption.Once funds are appropriated, the state treasurer makes payment to the authority no later than the fifth business day of the month following the month in which a credit has been made to the TTF, although the timing of the credit is not specified. In practice, distributions to TTFA are made throughout the year, well in advance of debt service payments.USE OF PROCEEDSIncluding premium amount, the current issue is expected to finance about $855 million of transportation system improvements. Such improvements can encompass planning, engineering, construction, reconstruction, repair and other purposes for state transportation components (such as roads and bridges) not funded by other sources available to the state.PROFILENew Jersey is the 11th-largest state, based on its 9.29 million population in the 2020 US Census. The state’s economy, with 2020 GDP of $618.6 billion, ranked ninth, according to the US Bureau of Economic Analysis. The Transportation Trust Fund Authority is an entity created under state law, and its members consist of the Commissioner of the New Jersey Department of Transportation, the Treasurer of the State of New Jersey, and five public members appointed by the Governor of New Jersey. Three of the appointed members require the advice and consent of the state Senate, and two are recommended by legislative officials (the President of the State Senate in one case and the General Assembly Speaker in the other).METHODOLOGYThe principal methodology used in this rating was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments Methodology published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1298498. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Edward Hampton Lead Analyst State Ratings Moody’s Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Timothy Blake MANAGING DIRECTOR MSPG JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY’S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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