The New Jersey Institutional Investors Forum XI October 23, 2008 Jon S. Corzine Governor Vivian Altman Chair Roger L. Anderson Executive Director
NJEFA Services • Financial Services: • Tax-exempt bonds • Taxable bonds • State-supported bond programs • Tax-exempt leasing program • Post-closing/Other Services: • Investment of bond funds • Monitoring for refunding opportunities • Arbitrage compliance • Swap monitoring • Escrow restructuring • Higher education finance conferences • Investor relations
NJEFA Issuance Overview By Par Amount By Number of Issues (in Million $) * Includes par amount financed to date
NJEFA Financings by Decade vs. Last 8 ½ years $7,568,717,418 8,000 7,000 6,000 (in Million $) 5,000 4,000 3,000 $2,505,433,659 2,000 $884,117,000 1,000 $425,931,000 0 1970s 1980s 1990s 2000s * Includes par amount financed in 1969 ** Includes par amount financed to date
Higher Education: Heavy Borrowing Continues $35 9% 8% $30 7% $25 6% $20 5% 4% $15 3% $10 2% $5 1% $0 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Higher Education $billion HE % Share of "Municipal" Market Sources: Moody’s Investors Service; Thomson Financial
Bond Insurer Ratings
ARS/VRDB Transactions 14 series of ARS 9 clients 3 series of insured VRDBs Total > $800 million Each client determines own solution
Process • Fall 2007 - monitored ARS and VRDB markets; provided updates to affected clients • Began search for alternatives once it looked like bond insurers would be downgraded • February 4th and 29th - issued RFPs for letters of credit to more than 50 banks and other institutions • Received proposals from 7 banks - enough to cover almost all exposure • February 27th – adopted global restructuring resolution authorizing staff to restructure affected transactions as approved by affected institutions • Reached out to Assured Guaranty Corp.
Options • Status quo Several failed auctions • Letter of credit backed VRDBs • Fixed-rate bonds • Put bonds • Buybacks
Results to Date Of the 9 institutions: Closed • 4 selected fixed-rate refundings • 1 wrapped existing VRDB’s with a LOC • 1 did a letter of credit refunding Pending • 1 combination put bond and letter of credit bonds refunding • 1 fixed-rate refunding • 1 combination fixed-rate and letter of credit bonds refunding
2008 Transactions Public Institutions • New Jersey City University, $74,620,000 (2 transactions) • Rowan University, $35,205,000 • The College of New Jersey, $287,790,000 • The Richard Stockton College of New Jersey, $136,910,000 • The William Paterson University of New Jersey, $88,670,000 Private Institutions • Drew University, $22,765,000 (2 transactions) • College of Saint Elizabeth, $24,090,000 • Institute for Advanced Study, $11,255,000 • Institute for Defense Analyses, $15,015,000 • Princeton University, $250,000,000 • Saint Peter’s College, $8,728,462 (2 transactions)
The William Paterson University of New Jersey Science Hall Source: The William Paterson University of New Jersey
The Richard Stockton College of New Jersey Campus Center Source: The Richard Stockton College of New Jersey
Princeton University Sherrerd Hall Source: Princeton University
Long-Term Interest Rate Comparison 30-Year Treasury vs. 30-Year AAA MMD Since January 1, 2008 Source: Phoenix Advisors, LLC
Forward Calendar • Seton Hall University $75 million Citigroup • Montclair State University $28 million Morgan Stanley • Kean University $175 million RBC Capital Markets • Princeton University $225 million JP Morgan • University of Medicine and Dentistry of NJ Morgan Stanley
“If you can solve the education problem, you don’t have to do anything else. If you don’t solve it, nothing else is going to matter all that much.” ALAN GREENSPAN Former Chairman, U.S. Federal Reserve Board 2006
College Participation U.S. population of 18-24 year olds 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 7 0 3 6 9 2 5 8 1 4 7 0 3 6 9 6 7 7 7 7 8 8 8 9 9 0 0 0 9 9 9 9 9 9 9 9 9 9 9 0 0 0 1 1 1 1 1 1 1 1 1 1 1 2 2 2 Percent Enrolled in College Source: U.S. Census Bureau, 2006
Earnings Premium Relative to Price of Education Sources: The College Board; U.S. Census Bureau, 2006
NJ Enrollment: Degrees Conferred 2000-2007 Total Degrees/ Total Enrollments Certificates 335,930 52,579 2000 346,277 53,205 2001 2002 361,757 55,866 2003 372,696 58,277 2004 379,447 61,428 2005 379,686 64,007 2006 385,612 65,105 2007 398,169 66,364 62,239 13,785 Cumulative Increase (18.53%) (26.22%) Source: New Jersey Commission on Higher Education
Steady Demand for College Actual and Projected NJ High School Graduates Sources: NJ Association of State Colleges and Universities; National Center for Education Statistics, December 2007
Responding to Demand • NJ public institutions: 50% acceptance rate • National average: 70% acceptance rate • NJ ranks #1 in out-migration of high school graduates
NJEFA Financing Expansion 2000-2008 3,500 3,000 $1,505,600,000 2,500 (in Million $) $835,423,891 2,000 1,500 $1,805,202,745 1,000 $416,230,000 $1,624,635,771 500 $773,625,000 0 Public Institutions Private Institutions State-Supported Programs New Money Refunding
The Broader Economy “As in prior periods of economic weakness, most colleges and universities enjoy relatively inelastic student market demand and have thus far sustained good pricing ability.” MOODY’S INVESTORS SERVICE U.S. Higher Education Outlook: Six-Month Update July 2008
“[T]he potential impacts of the combined credit freeze and recession on some colleges and universities will be significant if current trends persist.” MOODY’S INVESTORS SERVICE Impact of the Credit Crisis and A Weaker Economy on U.S. Higher Education October 2008
Outlook Dims for Key Revenue Streams of U.S. Higher Education * Moody’s rated institutions Source: Moody’s Investors Service
Giving Usually Holds Up Well * Moody’s rated institutions Source: Moody’s Investors Service
Tuition Increases Compared to Changes in State Appropriations 15% 10% 5% 0% 1983 1988 1993 1998 2003 2008 -5% % Change State Approps % Change Tuition and Fees * Moody’s rated institutions Sources: Moody’s Investors Service; Center for the Study of Education Policy, Illinois State University; The College Board
State Support is Declining Adjusted for CPI $350,000 (in Thousands $) $300,000 $250,000 $249,911,0 0 0 $224,932,0 0 0 $200,000 $150,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Direct State Adjusted Appropriations Inflation-Adjusted Appropriations Source: New Jersey Association of State Colleges and Universities; Governor’s Budget Recommendations; US Department of Labor’s CPI Detailed Report
New Jersey Higher Education Spending • FY 2009 – 3.5% cut • FY 2008 - $2.04 billion - operating expenses • FY 2006 - $858 million - research and development
The Price of College is Going Up Sources: Jobs for the Future; U.S. Bureau of Labor Statistics; The College Board; Data were analyzed by the National Center for Higher Education Management Systems and the Delta Project on Postsecondary Costs for Making Opportunity Affordable, an initiative supported by Lumina Foundation for Education
Private Institutions 2007 2006 2005 NJ All NJ All NJ All Privates Privates Privates Privates Privates Privates Median FTE Enrollment 4,583 2,847 4,164 2,822 3,892 2,801 (number may be estimated) Primary Selectivity (%) 66 55 70 58 76 62 Expendable Resources to 1.71 1.93 1.56 1.67 1.43 1.52 Direct Debt Expendable Resources to .9 1.3 .88 1.17 .87 1.1 Operations Annual Operating 5.4 4.1 1.9 3.6 5.6 3.1 Margin (%) * Moody’s rated institutions Source: Moody’s Investors Service
Public Institutions 2007 2006 2005 NJ All NJ All NJ All Publics Publics Publics Publics Publics Publics Median FTE Enrollment 7,138 16,064 6,896 13,904 6,745 13,698 (number may be estimated) Primary Selectivity (%) 53.1 70.6 53.2 72.6 50 75.2 Expendable Resources to .4 1.1 .4 .9 .3 .9 Direct Debt Expendable Resources to .41 .49 .37 .41 .41 .4 Operations Annual Operating 4.2 2.3 3.4 1.9 6.5 2.2 Margin (%) * Moody’s rated institutions Source: Moody’s Investors Service
Higher Education is Our Future “[T]he state’s universities and colleges . . . require state-of-the-art equipment, buildings, libraries and distance-learning capacity.” GOVERNOR JON S. CORZINE Economic Growth Strategy for the State of New Jersey 2007
Changing Workforce Needs Sources: Jobs for the Future; U.S. Bureau of Labor Statistics; Data were analyzed by the National Center for Higher Education Management Systems and the Delta Project on Postsecondary Costs for Making Opportunity Affordable, an initiative supported by Lumina Foundation for Education (2007)
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