The New Jersey Economic Development Authority yesterday finished a $100 million financing that officials say is the largest-ever tax-exempt offering for an investor-owned water utility.

Proceeds of the tax-exempt revenue bonds will pay for New Jersey-American Water Co.'s $230 million project to supply water to three counties in the state.

The authority sold $35 million of bonds yesterday and $65 million on Nov. 8 in a competitive bid. The bonds are backed by the company's general mortgage indenture. The company, which is responsible for principal and interest payments on the bonds, has $321 million of outstanding debt.

"In the 10 years I've been here, it's the largest tax-exempt financing I've ever seen for a water company," said Moying Seto, a vice president at Moody's Investors Service.

Many taxpayer advocacy groups argue that private companies deny the state needed revenue when they use the credit of public authorities to issue tax-exempt bonds.

Officials at die development authority say that customers' water rates will be lower because of the money the company saved with the tax-exempt bonds.

"When you're talking about a project that large, reduced borrowing costs can produce significant savings that can be passed along to the company's customers," said development authority spokeswoman Rose Smith.

The finance package let New Jersey-American "obtain the same low-cost capital available to municipal water authorities or public agencies," company president Daniel Kelleher said in a release.

Scheduled for completion at the end of 1995, the construction project will supplement the existing ground water to 55 communities in New Jersey, the company said.

New Jersey's Department of Environmental Protection wants to restrict use of ground water in the counties of Burlington, Gloucester, and Camden, so the company is building facilities to tap water from the Delaware River, said authority bond counsel Bernard S. Davis.

We've worked with water companies, and a lot of them are looking to provide alternate sources as a safety measure," said Davis, who closed the $35 million deal yesterday.

The project's $35 million Series B bonds, sold at a weekly variable rate by underwriter Merrill Lynch & Co., will convert to a long-term fixed rate when construction is completed, Davis said. At that point, the converted bonds will be sold at a competitive bid, he said.

The B series has a 35-year maturity; the $65 million A series has a maturity of 40 years. Longer-term bonds were issued because the life expectancy of the company's assets is 50 years, Davis said.

The Series A proceeds will reimburse the company for money already spent on the water project before issuance of the bonds. Series B proceeds will pay for additional project expenses incurred after today.

The bonds are rated triple-A rated based on insurance from Financial Guaranty Insurance Co.

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