Trading of New Jersey Turnpike Authority bonds has been in a state of confusion ever since a July 2 announcement that $2.5 billion of outstanding bonds would be refinanced, and sources working on the deal say the uncertainty is likely to persist at least a while longer.

"It's been really scary," said one trader at a New Jersey firm. "You could buy one of these at a premium today and it could be worth par tomorrow."

The problem centers on provisions in the indenture covering the authority's $2 billion 1985 deal.

The provisions permit the authority to use all of roughly $1.3 billion in unexpended proceeds to buy back the debt at par. Or, depending on market conditions at the time of the sale, the authority could choose to advance refund some of the debt, setting up an escrow account to pay debt service and calling the bonds at a healthy premium at the first call date. That would cheer holders of those bonds, because the trading value would likely skyrocket -- some say to as high as 105 -- based on the security of the escrow account and the premium value of the call.

But until the authority makes an announcement explaining its financing plans in detail, nobody knows into which category their bonds will fall.

The most likely route will be some mix of the two, according to Richard Poirier, a partner with the authority's financial advisory firm, Lazard, Freres & Co. But no firm decision has been made.

"Everybody that holds these bonds has been calling to find out what our plans are, but we've really only just begun the process of developing the financing plan," he said, pointing out that the official decision to refinance was made only two weeks ago.

The entire refinancing was prompted by Gov. Jim Florio's decision to use turnpike revenues as part of a plan to eliminate a $1.5 billion budget gap in the fiscal year 1992 budget. The state intends to sell a portion of highway to the authority in exchange for $400 million of proceeds originally set aside for future turnpike construction.

But authority officials and their bond counsel determined that existing bond covenants would prohibit the use of the money for such a purchase, leaving them no choice but to pursue a refinancing and the accompanying new indenture.

Although the first part of the refinancing plan will probably come at the end of this month or in early August, it is unlikely to clear up many o fthe market's questions. That is because the authority has decided that stage one of the three-part deal will be to refinance a $500 million 1984 issue that does not allow bond calls using unexpended proceeds -- the provision that has caused so much uncertainty for holders of the other portion of the deal, the market's benchmark 7.20s sold in 1985.

So secondary market pricing of the bonds will continue to reflect the uncertainty until a decision is made on how much of the 1985 debt will be called at par and how much will be refunded. And that decision could come as late as October, when the second piece of the refinancing is tentatively planned, Mr. Poirier said.

And even that date might be optimistic. Under legislation requiring the road sale, the authority has until June 1992 to complete the transaction, Mr. Poirier pointed out.

He added that the exact details and timing of any of the three proposed pieces of the refinancing plan will not be known, even by the authority, until just before the bonds are sold, because the decision is heavily dependent on market conditions at the time.

In Friday's trading, the authority's 7.20s were up 3/8 to 103-1/4 to yield 6.98% to the par call in 1999. The bonds hold almost a one-point lead on other names because of the announced refunding. But traders noted that the bond made its gains Friday on thin trading and amid general confusion surrounding the refunding.

Quotes coming in at 103 and higher reflect speculation that a large number of the bonds will be refunded at a premium, rather than called at par from unexpended proceeds. Under the 1985 indenture, a call at the first opportunity in 1993 would require a premium of 103. The 1984 bonds can be called immediately at a premium of 101 between now and December.

One trader said his firm has decided to sit tight, advising clients against selling any of the bonds at the current market premium until it becomes more clear what the authority's final decision will be. He said other firms apparently are taking the same conservative route, because trading of the bonds has "dried up" since the July 2 refinancing announcement.

"As the refinancing draws nearer, you might have a better defined market for these things," added the head of one New York trading desk. "But right now it's a mess."

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