The head of the New Jersey Sports and Exposition Authority warned on Friday that the authority may have to dip into bond reserve funds to cover debt service on some of its bonds if state lawmakers do not permit it to sell a refunding backed by state money.
The authority is asking the state Legislature to pass a bill allowing it to refund outstanding debt with bonds secured with a state appropriation, rather than authority revenues.
If the refunding of the high coupon debt cannot take place, the authority said it would have to dip into the reserves of a subordinated bond issue sold in November 1985. The issue is rated A by Moody's Investors Service. The authority said will not have to dip into the reserves of two other separate and outstanding bond issues.
Raiding the reserve will not trigger a technical default, authority officials and bond counsel said on Friday.
The proposed refunding would reduce debt service costs by refunding the outstanding subordinated debt, which has coupons averaging 10%, and create a new security by having the state secure the bonds with a state appropriation.
A bill has been submitted to the state Senate that calls for $420 million of bonding -- $193 million refunding and $200 million in new money -- to finance the construction of a convention center in Atlantic City, as well as renovate and expand the stadium in Piscataway. Under the proposal, the state would have to provide $30 million a year to pay off the bonds.
Some members of the state Assembly are balking at the bonding plan.
Robert E. Mulcahy 3d, president and chief executive officer of the authority, reported at a public board meeting on Friday that under the authority's current debt structure, the authority will have to draw on its subordinated bond reserve to pay principal and interest on the subordinated issue.
The authority pays roughly $31 million a year in debt service for the three outstanding issues, said James J. Durkin, chief financial officer of the authority. "This is the first time we have had to dig deep into our reserve."
The revenues were sufficient to meet debt service payments for calendar 1991, the authority's fiscal year, he said. But he also said, "There will be a problem in 1992 with the subordinated bond payments if we don't get the legislation.
"We would have to pay principal and interest out of the subordinated bond reserve," he noted. There is about $16 million in the fund, "enough to cover debt service for about two years,' he said. Annual debt service on the subordinated bonds, secured with a third lien on authority revenues, is about $8 million annually, Mr. Durkin said.
Robert Ferdon, a partner with Mudge Rose Guthrie Alexander & Ferdon, the authority's bond counsel, said there would not be any technical default if the authority used the reserve funds.
One of the other two outstanding bond issues is a $68 million senior lien sale done in December 1978 and secured with authority revenues, Mr. Durkin said. The bonds are rated AA by Moody's Investors Service and the authority pays about $6 million a year in debt service on them.
The second issue is a $157 million issue sold in November 1985 and secured with a second lien on authority revenues and backed with the state's GO pledge, Mr. Durkin said. The authority pays about $6 million a year in debt service on these bonds, which are rated AAA by Moody's and AA-plus by Standard & Poor's Corp.
