Last week New Jersey Governor Jon Corzine published his Financial Restructuring and Debt Reduction Proposal, which would use structured finance techniques to issue up to $37.6 billion to pay down half of the state's $32 billion debt and fund future transportation projects.

Essentially, the legislation would allow the state to enter into a 75-year concession agreement to operate the state's toll roads and back debt issuance with a predictable stream of toll road revenue. Those roads include the Atlantic City Expressway, the Garden State Parkway and the New Jersey Turnpike.

A key component of the proposal incorporates a technique that closely mirrors the bankruptcy-remote, special purpose entity concept that drives securitization deals. The concession agreement would be carried out by a nonprofit entity, called the Public Benefit Corp. (PBC), created to be legally separate and independent of the state of New Jersey. The PBC will be allowed to issue debt, charge tolls necessary to repay it and collect that revenue.

More importantly, the PBC's debt will not be state debt, according to state officials.

"The state is not going to have an obligation, be it moral, legal or otherwise, to be responsible for the bonds that the PBC issues," said Mark Perkiss, a spokesman for the New Jersey treasury department.

The state had not made a final determination as to how the bonds would be distributed, but the idea is to sell multiple transactions to a variety of different bond markets, Perkiss said.

"Governor Corzine's proposal unlocks the value in New Jersey's toll roads to pay down 50% of the state's debt and fund statewide transportation improvements for a generation," according to a statement from the governor's office.

For starters, the proposed bill calls for the reorganization of the state's toll road authorities into the New Jersey Capital Solutions Corp. (CSC), now known as the New Jersey Turnpike Authority. The CSC will be authorized to incorporate two domestic nonprofit organizations, the PBC and the Citizen's Oversight Board. The PBC will have the power to issue bonds with authorization. It will also be able to increase and collect tolls by 50% in four, four-year increments beginning on Jan. 1, 2010. The draft also calls for the imposition of tolls along a portion of Route 400 beginning after Jan. 1, 2014. The CSC will retain the power to issue bonds, according to a draft of the proposal.

Initially, the PBC could borrow between $32.6 billion and $37.6 billion. About $8 billion of that would be retained by the PBC, one-half of which would be dedicated to financing reserves and the rest for toll road capital expenditures.

The rest of the proceeds would be used to retire $5.7 billion of outstanding bond issued by the current New Jersey Turnpike Authority and the South Jersey Transportation Authority. Another $10.6 billion would be used for the repayment or the defeasance of outstanding bonds issued by the Transportation Trust Fund Authority and for pay-as-you-go capital projects. Last, the approximately $8 billion to $13 billion left over would be used to pay off state debt or entities through which it operates, such as the New Jersey Economic Development Authority.

"The retirement of this debt is anticipated to reduce the General Fund appropriations for debt service by $600 million to $1 billion a year for a decade, with smaller savings in later years." according to the proposal.

The plan also includes several provisions relating to personnel. Employees of the CSC may be designated as employees of the PBC, and the PBC will be required to hire the New Jersey State Police to provide law enforcement on the toll roads.

At press time, the proposal had not been introduced to the Senate or Assembly, because it did not have a sponsor. However, Rep. Rush Holt (D-N.J.) had endorsed the plan.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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