NEW YORK (Business Wire) -- Fitch Ratings assigns a 'AA-' rating to the Port Authority of New York and New Jersey's (the authority) $450 million of consolidated bonds 147th series (alternative minimum tax). The bonds are expected to sell competitively on April 19, 2007. Bond proceeds will be applied to fund various capital plan projects and refund portions of outstanding consolidated bonds.
In addition, Fitch affirms the ratings and the following outstanding debt of the authority:
--$9 billion consolidated bonds at 'AA-';
--$350 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.
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 World Trade Center (WTC) site and the Trans-Hudson Express Tunnel Project (THE). The latter two commitments are currently budgeted for as part of the authority's overall $26.1 billion 2007-2016 capital program, and are expected to be largely offset by third party funding sources. 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 a toll rate increase at the authority's vehicular crossings cannot be ruled out. Currently, the authority's capital plan assumes a modest increase in debt supported capital investment and no toll rate increase.
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 on-going capital investment at the various airports.
Continued healthy operating performance in 2006 supported solid coverage of debt carrying charges, reinvestment in facilities, and accumulation of reserves during the year. Net revenues of approximately $1.5 billion provided 2.3 times (x) coverage of 2006 principal and interest, with approximately $694.2 million of excess revenues added to authority reserves. 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, budgeted 2007 operating metrics may be somewhat understated. The authority's total reserve fund balances including the general reserve and consolidated bond reserve fund increased by to $1.77 billion during 2006, representing a solid 18% of pro-forma consolidated bonds and notes (including the 147th series). Reserve levels are budgeted to remain relatively flat in 2007 as available net revenues will be applied to support $2.5 billion in planned capital investment.
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, New York
Douglas J. Kilcommons, +1-212-908-0740
Corey Modeste, +1-212-908-0399
Cindy Stoller, +1-212-908-0526 (Media Relations)
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