Fitch Ratings assigns an underlying 'AA-' rating to the Port Authority
of New York and New Jersey's (the authority) $400 million of
consolidated bonds, series 152. The bonds are expected to sell
competitively on or about May 7th. Bond proceeds will be used to fund
components of the authority's capital plan and/or to refund obligations
of the authority.
Fitch also affirms the underlying ratings on the following authority
bonds:
--$10 billion consolidated bonds at 'AA-';
--$505 million versatile structure obligations series 1 through 6 at
'A+'.
The Rating Outlook on all outstanding debt is Stable.
The authority's ratings reflect the demand for New York/New Jersey-based
travel, supported by the region's diverse economy and status as a global
center of commerce; the authority's expansive, diverse portfolio of
transportation and commerce-related assets; institutionalized practices
and fiscal conservatism; consistently healthy financial performance and
debt service coverage, bolstered by the cost recovery nature of the
airport use agreements, management cost control, timely toll increases;
and significant balance sheet liquidity.
The authority exhibited healthy operating performance in 2007,
supporting solid coverage of debt service carrying charges, reinvestment
in facilities, and accumulation of reserves during the year. Net
revenues (excluding World Trade Center [WTC]
Sept 11 revenues) of approximately $1.6 billion provided 2.8 times (x)
debt service coverage, with approximately $399 million of excess
revenues added to authority reserves. Year-to-date financial data
available indicates the authority's net operating income is 2.4% higher
when compared to the corresponding time period in 2007 and 21% higher
than budgeted for January through March, capturing the authority's
conservative budgeting practices.
The authority's total reserve fund balances including the general
reserve and consolidated bond reserve fund increased to $2.2 billion
during 2007, representing 23% of pro-forma consolidated bonds and notes.
Reserve levels are budgeted to increase (to $245 million) in 2008 mainly
due to the receipt of insurance proceeds and third-party contributions
associated with WTC site re-development.
The primary credit concern remains the potential for increased financial
leverage and reduced liquidity as a result of the authority's very large
financial commitments made for the improvement and expansion of its
existing assets, along with developments at the WTC site and the
Trans-Hudson Express Tunnel Project (THE). The latter two commitments
are currently budgeted at $8.44 billion and $3 billion, respectively,
and are part of the authority's overall $29.5 billion 2007-2016 capital
program. Government grants, insurance proceeds, and separately secured
financings are expected to limit the burden of these commitments on the
authority's consolidated bond credit.
In the absence of these important offsets, the risk remains that the
authority, given its prominent role in lower Manhattan redevelopment and
in regional transportation coordination, could be responsible for
funding increased portions of the overall costs for both projects.
Should this occur, significant additional consolidated bond debt and
further toll rate increases at the authority's vehicular crossings would
likely be necessary. Currently, the authority's capital plan and budget
assumes a reasonable increase in debt supported capital investment and
toll and fare increases were recently implemented on March 2, 2008.
Fitch recognizes that the authority maintains significant economic
rate-making flexibility at its various enterprises, including the
airports, bridges and tunnels, providing the means to raise revenues to
support new debt and rebuild liquidity, if needed. The operations of
three metropolitan New York and New Jersey airports, the authority's
primary revenue generating assets, have long been relied upon to support
capital investment and subsidize non-income generating assets required
as a result of the authority's broad mission. The ability of the
airports to continue subsidizing non-self-supporting endeavors will
become increasingly challenged, particularly as such excess income will
be required to support terminal redevelopment projects and other ongoing
capital investment at the various airports. Fitch expects the authority
to continue to manage its expansive capital plan by raising tolls and
other associated fees as needed.
Fitch's rating definitions and the terms of use of such ratings are
available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality, conflicts
of interest, affiliate firewall, compliance and other relevant policies
and procedures are also available from the 'Code of Conduct' section of
this site.
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