NEW YORK (Business Wire) -- Fitch Ratings assigns an 'AA-' rating to the Port Authority of New York and New Jersey's (the authority) $500 million of consolidated bonds 146th series (alternative minimum tax). The bonds are expected to sell competitively on Dec. 6, 2006. Bond proceeds will be applied to fund various capital plan projects. At the same time, Fitch affirms the ratings and the following outstanding debt of the authority:
--$8.8 billion consolidated bonds at 'AA-';
--$350.0 million consolidated notes at 'F1+';
--$519.6 million versatile structure obligations (VSO) at 'A+/F1+'.
Consolidated bonds and notes are secured by net revenues of the authority and a pledge of the general reserve and consolidated bond reserve funds. VSOs, which are secured by numerous bank standby bond purchase agreements, also benefit from a subordinate pledge of the consolidated bond reserve fund. The Rating Outlook for all long-term securities is Stable.
The 'AA-' and 'F1+' ratings reflect the strong demand for New York/New Jersey-based travel, supported by the region's expanding 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 use agreements in place primarily at the airports, cost control, and timely toll increases; and significant balance sheet liquidity.
Primary credit concerns include the likelihood of increased financial leverage and reduced liquidity as a result of very large near term financial commitments made by the authority to projects at the World Trade Center (WTC) site and the recently announced Trans-Hudson Express Tunnel Project (THE) and increased reliance on the operations of the three metropolitan New York and New Jersey airports to subsidize non-income generating assets and support capital investment required as a result of the authority's broad mission. In Fitch's view, the ability of the airports to continue subsidizing such non-self-supporting endeavors will be challenging.
The authority estimates that both operating performance (28% operating ratio) and debt service coverage (approximately 2 times (x)) for 2006 will largely mirror levels recorded during the prior year. Preliminary budget figures indicate that operating performance could decline slightly during 2007 (26% operating ratio), while coverage remains at or just above 2x. Fitch recognizes the authority is typically conservative in its forward projection of revenues and expenditures, and as such, preliminary budgeted 2007 operating metrics may be somewhat understated. The authority's total reserve fund balances including the general reserve and consolidated bond reserve fund are estimated to have increased by 11% to $1.74 billion during 2006, representing a solid 19% and 17% of pro-forma consolidated bonds and notes (including the 146th series)and total obligations (excluding special project bonds), respectively. Growth in total reserves is expected to be more modest in 2007 as the preliminary budgeted 33% increase in capital expenditures, from $1.9 billion to $2.5 billion, necessitates increased debt issuance and direct facility investment from available net revenues.
Fitch expects the authority's recently accelerated pace of debt issuance to continue through at least the intermediate term given its commitments, which are subject to the approval of the board of commissioners among other conditions to fund portions of the redevelopment of the WTC site, notably the Freedom Tower and projects comprising the WTC memorial, and its intention to fund portions of the THE. The availability of federal grant monies and in the case of WTC site projects, the availability of insurance proceeds and recovered third party funds will influence the timing and amount of any additional debt. Fitch recognizes that the authority maintains significant economic rate-making flexibility at its various enterprises, including the airports, bridges and tunnels, providing an ability to raise revenues to support new debt or rebuild liquidity, if needed. Nonetheless, financial margins could be pressured for a time, particularly if higher rates and charges are initially met by opposition.
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.
Fitch Ratings
Douglas J. Kilcommons, +1-212-908-0740
Corey Modeste, +1-212-908-0399
Jessica Soltz Rudd, +1-415-732-5616
Christopher Kimble, +1-212-908-0226 (Media Relations)
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