The fiscal 2001 transportation appropriations bill that Congress passed last week included $500 million for New Jersey Transit Corp.'s Hudson-Bergen Light-Rail line - a sum that the corporation plans to securitize in a $550 million grant anticipation note (Gans) sale in November.

In September, the transit agency completed the first unenhanced, full funding grant agreement financing without having a reserve fund to offset appropriation risks and late federal payments. The sale of $295 million in GANS went well for the state, so it plans to use the structure again to finance the light rail project, according to Jim Poole, director of the state's Office of Public Finance.

The final hurdle for the new deal is the enactment of the federal appropriation, for although Congress has approved the bill, President Clinton has not received it, according to the White House. Clinton is expected to sign the bill.

According to Poole, the state has been waiting since Sept. 18 for the full funding grant agreement papers to be signed, and had originally planned for the sale to occur in mid-October. But the earliest the bonds could now sell is Nov. 1.

"We're ready to go on this as soon as they sign on the dotted line," said Poole.

Once sold, the $550 million raised in the securitization will finance the 5.1-mile-long, second portion of the Hudson-Bergen Light-Rail line, which stretches from the Hoboken Terminal to Tonnelle Ave. in Hoboken. A $7 million federal appropriation and a portion of the bond sale will go toward a one-mile light-rail line between the cities of Newark and Elizabeth.

Although the first effort at unenhanced GANS garnered an A-minus from Standard & Poor's Ratings Services, an A2 from Moody's Investors Services, and an A-minus from Fitch, the latest deal might not fare so well with the ratings agencies.

Any difference in ratings could stem from the differences between the two transactions. The last sale refunded 1997 bonds issued for the first stage of the rail line, and by the time those bonds were issued construction risks were no longer applicable. The natural construction risks associated with any complex project are heightened in these cases because the federal law for full funded grant agreements states that, if a project isn't completed by scheduled dates, the grants could be nullified. Because this portion of the light-rail line is scheduled to open in 2005 and isn't past the design phase yet, Poole admitted that the ratings might be impacted.

However, New Jersey Transit will be using the same contractor for the second phase as it did for the first, and that firm finished construction on time. Colleen Woodell, a director with Standard & Poor's, has warned that these are two separate construction projects, and this distinction could lead to two different ratings.

"The construction risk has the potential to make a difference in the rating for this project," said Woodell. But Chee Mee Hu, a managing director at Moody's, believes that the management team behind the credit is experienced enough to mitigate some of the construction risks.

However, Hu does stress that this deal could very well earn a different rating.

The deal will be underwritten by PaineWebber Inc. A decision on insuring the deal is pending an economic analysis.

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