Dépêches

Fitch Rates New York & New Jersey Port Authority's Consolidated Bonds 'AA-'; Outlook Stable

Dépèche transmise le 16 juin 2009 par Business Wire

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' underlying rating to the following Port Authority of New York and New Jersey's (the authority) bonds:

--$150 million consolidated bonds series 157;

--$250 million consolidated bonds series 158;

--$350 million consolidated bonds series 159.

The bonds are expected to sell competitively June 18th, 2009 and have final maturities of 2019, 2024, and 2029, respectively. Consolidated bonds and notes are secured by net revenues of the authority and a pledge of the general reserve and consolidated bond reserve funds. Bond proceeds will be used to support World Trade Center (WTC) capital projects of the authority.

Fitch has also affirmed the underlying ratings on the following authority bonds:

--$11.1 billion consolidated bonds at 'AA-';

--$314 million versatile structure obligations series 1, 3, 4 and 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, cost containment strategies, and timely toll increases; significant balance sheet liquidity, and the authority's demonstrated ability to manage operations and an expansive capital plan simultaneously.

The primary credit concern remains the potential for increased leverage and reduced liquidity as a result of the authority's very large financial commitments for the improvement and expansion of its existing assets, along with developments at the WTC site and the Access to the Region's Core Project (ARC). The latter two commitments are currently budgeted at $9.5 billion and $3 billion, respectively, and are part of the authority's overall $29.5 billion 2007-2016 capital plan. As of 2008, approximately 23% of the total capital plan is allocated to maintaining assets in a state of good repair and 27% is dedicated to the WTC site; however, these percentages are expected to fluctuate as the authority progresses with core items of its capital plan.

Going forward, management could face challenges to maintain financial margins while concurrently executing its capital plan. In light of the U.S. and global economic downturn, aviation, surface, and port revenue streams could be adversely affected and constrain the authority's ability to internally fund capital investments. While government grants, insurance proceeds, and separately secured financings are expected to assist in limiting the burden of these commitments, the authority could be required to defer a portion of the plan to maintain financial flexibility if costs continue to escalate and revenues decline.

Should there be substantial cost increases in the authority's capital plan, significant and timely adjustments would most likely be necessary to maintain credit metrics commensurate with the rating. Furthermore, the authority could be responsible for funding increased portions of the overall costs for both projects. Fitch views this possible development as a risk given the authority's prominent role in lower Manhattan redevelopment and in regional transportation coordination. The authority's capital plan and budget already assumes a reasonable increase in debt-supported capital investment, and toll and fare increases were recently implemented on March 2, 2008, yielding approximately $312 million in additional revenue per year.

In 2009, the authority's budget forecasts a 12% increase in operating revenues, which predominately reflects the impact of a full year's toll and fare increases and 0% growth in operating expenses. Additionally, the budget sets forth a 28% increase in capital investment to stimulate regional growth and economic development. Although the authority maintains a demonstrated track record of supporting capital investment during both economic expansion and contraction, the pressure on the city and state economies coupled with higher interest rates due to credit tightening could cause delays and/or deferments in capital spending on projects lacking committed funding sources. Fitch recognizes that the authority maintains significant economic rate-making flexibility at its various enterprises, including the airports, bridges and tunnels, providing the authority with 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. However, in light of current airline industry volatility and recession, the authority's three major airports exhibited substantial resiliency system-wide throughout 2008. In 2008, international travel at John F. Kennedy International (JFK) and Newark Liberty International (EWR) effectively mitigated domestic declines at La Guardia (LGA), yielding flat revenue passenger volumes for LGA, JFK, and EWR when compared with 2007 year-end totals. Through February 2009, total revenue passengers are down approximately 11% when compared to the same corresponding time frame in 2008; however, these numbers also take into account February 2008 being a leap year. Although international travel continued to grow through 2008, international and domestic demands are now exhibiting similar reductions of approximately 11%, respectively. Fitch will continue to monitor travel trends given the authority's large percentage of revenues derived from airport operations.

The authority showed healthy operating performance in 2008, supporting solid coverage of debt service carrying charges, reinvestment in facilities, and accumulation of reserves during the year. Net revenues (excluding WTC Sept. 11 revenues) of approximately $1.95 billion provided 3.46 times (x) debt service coverage and is expected to be above 2.0x in 2009, with approximately $220 million of excess revenues added to authority reserves. In 2008, operating results indicated continued healthy financial margins despite unbudgeted increases in operating expenses. Increased expenses were due to the assessment of liquidated damages and delays in turning over various components for Tower 2, 3, and 4 of the WTC. The 2009 budget includes an additional $29 million in assessed liquidated damages related to turning over WTC Towers 2 and 3.

Despite the incurred liquidated damages expenses, net operating income increased by approximately $220 million, capturing higher tolls and fares revenues, increased rental revenues from major aviation and port facilities, and higher aviation fees from cost recovery agreements with airlines operating at LGA, JFK, and EWR. The authority's total reserve fund balances, including the general reserve and consolidated bond reserve fund increased to $2.39 billion during 2008, representing 23% of the authority's senior bonds and notes outstanding. The authority expects its solvency position to remain strong throughout 2009, with reserve balances projected to reach $2.5 billion by the end of its fiscal year.

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.