July 31st, 2008
Raymond W McDaniel Jr.
Chairman and CEO
7 World Trade Center
250 Greenwich Street
New York, NY 10007
Dear Mr. McDaniel:
On behalf of the thousands of taxpayers and investors who are members of Americans for Prosperity-New Jersey, I’m writing to express grave concern over your company’s ratings practices regarding bonds issued by the New Jersey Economic Development Authority under contract with the State of New Jersey. As the courts have made clear, these bonds are not backed by the full faith and credit of the state of New Jersey, and there is no guarantee that future legislatures will appropriate the funds to service the bonds.
The practice of referring to these bonds as revenue bonds is highly misleading, because often—and specifically in the case of the pending $3.9 billion bond offering for school construction bonds—there is no revenue source other than appropriations by future legislatures, which cannot be bound contractually.
The major bond insurers face daunting financial uncertainty, and the Financial Guaranty Insurance Company, which insures many New Jersey EDA bonds, has already been downgraded below investment-grade. There is no guarantee, despite the millions of taxpayer dollars spent on bond insurance, that anything other than the political whims of future legislatures stands behind these bonds.
We therefore believe that rating these bonds as investment-grade is a serious misjudgment that could subject investors to more heavy losses similar to the current fallout following similar misjudgment in the rating of mortgage-backed securities.
We urge you to consider the very real possibility that future legislatures, which are not legally obligated to appropriate funds to service these bonds, will choose not to do so, and to therefore rate these bonds to reflect the real and substantial risk of default that they carry.
Americans for Prosperity-New Jersey