NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating to the Port Authority of New York and New Jersey (PANYNJ)'s $400 million 183 series consolidated bond issuance. Proceeds from the 183 series issuance are expected to partially repay approximately $50 million of outstanding commercial paper, with the remainder to be allocated to capital expenditure.
Fitch has also affirmed the ratings for the authority's existing debt as follows:
--$18.8 billion in outstanding consolidated bonds at 'AA-';
--Commercial paper (CP) notes, series A (AMT) (tax-exempt) at 'F1+', authorized up to $300 million;
--CP notes series B (Non-AMT) (tax-exempt) at 'F1+', authorized up to $200 million.
The Rating Outlook for the authority's consolidated bonds is Stable.
RATING RATIONALE
The ratings are supported by PANYNJ's mature, diverse and monopolistic asset base which notably includes certain very strong airport and bridge/tunnel assets, and are further supported by the authority's conservative debt structure and moderate leverage, with debt service coverage ratio (DSCR) expected to be managed at or above 1.8x. Nevertheless, its extensive capital plan and guardianship of significantly loss-making assets constrain the rating.
KEY RATING DRIVERS
Resilient Cash Flows And Stable Revenue Base: PANYNJ has a monopolistic position over an expansive, diverse portfolio of transportation and commerce related assets, including four metropolitan New York/New Jersey airports, an interstate transportation network comprising tunnels, bridges, terminals, and ferries, as well as seaports. Strong demand characteristics are underpinned by the region's diverse and populous economy as well as its status as a global center for commerce. Revenue - Volume: Stronger
High Rate-Setting Flexibility: The authority has demonstrated an ability to produce consistently healthy financial performance, reinforced by strong cost recovery provisions in airline use agreements at airports and timely toll increases on its bridges and tunnels with minimal impact on traffic levels. This flexibility may, however, come under pressure if World Trade Center rental revenues do not develop as expected, or if operating losses on Port Authority Trans-Hudson (PATH) transit network widen significantly. Revenue - Price: Stronger
Extensive Debt-Funded Capital Plan: PANYNJ's 2014-2023 capital plan totals approximately $27.6 billion. Cost and delay risk are meaningful for a plan of this scale and complexity. These risks would be further compounded if PANYNJ was mandated by either state to take on additional non-core, non-revenue generating assets that could reduce future funding capacity for these capital works. Infrastructure & Renewal: Midrange
Conservative Capital Structure: The authority maintains a nearly 100% fixed-rate, fully amortizing capital structure. Debt Structure: Stronger
Moderate Leverage, Strong Coverage: Leverage is moderate, with 2014 net debt to cash available for debt service (CFADS) expected to be 7.1x (excluding cash in the general fund). Significant balance sheet liquidity, reserving requirements, ability to control operating and maintenance costs, and a demonstrated history of generating DSCR over 2.0x all mitigate leverage and support the rating.
RATING SENSITIVITIES
Negative - Weaker financial margins due to slow revenue growth and/or higher rates of growth in operating expenses;
Negative - Significant escalation in expected capital needs and additional leveraging not supported by commensurate revenue increases to maintain DSCRs at or above 1.8x-2.0x;
Negative - The generation of lower revenue than currently forecast from the World Trade Center site that puts increased pressure on airport and bridge and tunnel assets to meet the revenue shortfall;
Negative - Actions by either the State of New York or New Jersey to limit the authority's ability to raise tolls to cover growing debt service obligations;
Negative - Significant new non-core state-mandated investment that impacts future core-investment capability;
Positive - None at present.
SECURITY
Consolidated bonds and notes are secured by net revenues of the authority and a pledge of the general reserve and consolidated bond reserve funds.
CREDIT UPDATE
PANYNJ's net operating revenue for the year to Dec. 31, 2013 (FY 2013) was $1.6 billion, up $188 million on the prior year. The result reflects higher gross operating revenues as well as the impact of net recoverables relating to superstorm Sandy. Increased gross operating revenue primarily reflected increased toll and fare revenue from bridges and tunnels as well as the PATH transit network resulting from scheduled toll and fare increases. Operating expenses were broadly flat year-on-year. The total economic impact of hurricane Sandy is approximately $2.4 billion, which the authority expects to largely recover through insurance and federal disaster relief.
Bad weather conditions during first quarter 2014 affected performance of all business segments in the period, with year-over-year (y-o-y) traffic declines experienced both on bridges and tunnels and also at the authority's airports. Despite falling traffic, bridge and tunnel revenue was 2.4% higher than the same period 2013 as a result of mandated toll increases; furthermore, PANYNJ expects to recover increased costs resulting from weather conditions from airlines under its in-place cost recovery agreements.
In February 2014 PANYNJ published its approved 2014-2023 capital plan, which provides for over $27 billion of investment through the period. Around $14 billion of the plan relates to state of good repair works, with approximately $11 billion allocated to major bridges including Lincoln Tunnel access improvement, replacement of Goethal's Bridge, raising of Bayonne Bridge, redevelopment of the central terminal building at La Guardia Airport and Terminal A at Newark Liberty International Airport, the renovation of several PATH stations and the extension of PATH to Newark airport. A further $5 billion relates to works required to complete the redevelopment of the World Trade Center site. The capital plan is extensive, but was largely anticipated. In Fitch's view, the approved plan provides a degree of definition and certainty as to PANYNJ's investment strategy over the next decade. Nevertheless, its scale brings with it some risk, and significant additional debt will be required over forthcoming years to realize the plan in full.
The September 2011 multi-phased toll and PATH fare increases have allowed the authority to build financial flexibility while moving its capital plan forward. While Fitch takes the view that remaining mandated toll and fare increases due later in 2014 and in 2015 should yield the authority additional revenue growth with limited impact on traffic, further toll and fare increases beyond those currently authorized in the medium term, if required, may be politically and economically more difficult for PANYNJ to implement.
In particular, Fitch notes the authority's expectation of significant WTC rental revenue being generated over the next few years. It will be important for PANYNJ to realize such revenue in line with, or close to, expectation so as to ensure it does not become reliant on future bridge and tunnel toll increases to maintain its healthy financial profile, as indicated by DSCR remaining no lower than around 1.8x-2.0x.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (July 12, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Oct. 16, 2013);
--'Rating Criteria for Ports' (Oct. 3, 2013);
--'Rating Criteria for Airports' (Dec. 13, 2013).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating Criteria for Toll Roads, Bridges and Tunnels
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720736
Rating Criteria for Ports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=719985
Rating Criteria for Airports
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725296
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834597
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