Office of the State Treasurer

"The Education Facilities Construction program presents an enormous capital project challenge to the State of New Jersey," said Treasurer McCormac. "The Department of Education is implementing a far reaching program to address long-overdue space and modernization needs in school districts throughout the State. At this time of challenge, we also have an unprecedented opportunity to minimize program financing costs to the taxpayer by taking advantage of historically-low interest rates in the financial markets."

Treasurer McCormac said the State is establishing a program to issue long-term fixed rate bonds to "hedge" against future increases in interest rates. The "Hedge Program" would be structured in a way to protect approximately $3 billion in future school construction debt from any potential rate increases over the next three to four years. To date, the New Jersey Economic Development Authority has issued $1.1 billion in debt for school construction projects, leaving a balance of approximately $7.5 billion to be bonded.
EDA Chairman Anthony Coscia said the proposed transaction would have a positive effect on the implementation of the school construction program "As a lead agency in New Jersey's educational facilities construction program, the EDA views this financing mechanism as a timely and cost-effective tool to move projects forward," Coscia said.

The Treasurer noted that rate lock, also known as "swap," transactions have gained broad market acceptance over the past several years and are being used by many public and private sector issuers to hedge interest rate risk. Other issuers to recently authorize rate locks include the Pennsylvania Turnpike Commission, the Delaware River Port Authority, the California Department of Water Resources, the (New York State) Empire State Development Corporation and the Atlanta Water and Wastewater Authority.

In preparation for structuring a rate lock transaction, the Treasurer's Office issued a Request For Proposal earlier this month to solicit firms with swap advisory expertise. From the responses, 20 firms were selected for placement in a specialized pool.
From that pool, a team of nine firms has been chosen to structure and implement the rate lock for the school construction bonds.

The two co-managers of the team are Investment Management Advisory Group, of Pottstown PA, and Swap Financial Group, LLC, of South Orange.

The team also includes Lamont Financial Services Corp, of Wayne; Powell Capital Markets of Roseland; Public Financial Management, of Moorestown (Financial Advisor);
Chambers, Dunhill, Rubin and Co., of Beverly Hills, Ca; First Albany Corporation, of NY,NY; Public Resources Advisory Group, of NY, NY; and RBC Dain Roucher, Inc., of Philadelphia, PA.

"Through prudent planning, timing and research, the McGreevey administration has effectively reduced or minimized debt service costs to the State, saving $40 million alone on the refunding of General Obligation bonds earlier this year. Locking today's interest rates into future financing of school construction makes sense and will minimize interest costs as projects move from drawing board to breaking ground," McCormac said

Long term fixed rates are near historic lows, as evidenced by the 10-year US Treasury Bill yield of approximately 3.90 percent. Over the last ten years, the yield on the US Treasury Bill has been below its current level less than one percent of the time.