Fitch Ratings assigns an 'AA-' rating to the Port of Authority of New York and New Jersey's (the authority) $300 million consolidated bonds, series 173. Additionally, Fitch assigns an 'F1+' rating to the authority's $300 million consolidated notes, series ZZ (federally taxable).
Fitch also affirms the authority's existing debt as follows:
--$16.1 billion in 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 on all PANYNJ obligations is Stable.
KEY RATING DRIVERS:
--Resilient cash flows and stable revenue base: The authority 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 (tunnels, bridges, terminals, and ferries), and seaports. Strong demand characteristics for these commerce related assets are underpinned by the region's diverse and populous economy as well as its status as a global center for economic activity.
--High degree of rate-setting flexibility: The authority has demonstrated an ability to produce consistently healthy financial performance reinforced by the cost recovery nature of use agreements in place primarily at the airports and timely toll increases.
--Conservative capital structure: The authority maintains a nearly 100% fixed-rate capital structure.
--Moderate leverage levels and strong coverage ratios: Leverage levels are moderate at approximately 8.0x net debt to cash available for debt service (CFADS) and are expected to decline as the authority slows capital borrowings. The moderate leverage position is partially offset with significant balance sheet liquidity, legally required reserve levels, ability to control operating and maintenance costs, and a demonstrated history of generating debt service coverage ratios (DSCRs) over 2.0x.
--Established asset base with reinvestment needs: The authority's broad base of long-established infrastructure assets results in an approximately $25 billion capital plan with some near-term pressure to address growing deferred maintenance. The authority expects to fund the plan with approximately 40% to 50% debt.
WHAT COULD TRIGGER A RATING ACTION:
--Weaker financial margins due to slow revenue growth and/or higher rates of growth in operating expenses;
--Additional leveraging beyond the current plan to debt finance approximately 40%-50% of capital expenditures over the next 10 years not supported by commensurate revenue increases to maintain DSCRs at or above 1.8-2.0x;
--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.
Consolidated bonds and notes are secured by net revenues of the authority and a pledge of the general reserve and consolidated bond reserve funds. The authority's CP program is authorized to a maximum of $500 million to provide capacity to finance, on an interim basis, capital projects of the authority.
The consolidated bonds offered will be fixed rate with a final maturity in 2032 and are expected to sell competitively on or around June 13. Bond proceeds will be used for authority capital projects and/or to refinance outstanding authority debt to achieve debt service savings. The consolidated notes, also to be sold competitively on June 13, will mature on Dec. 1, 2012 and proceeds will be used to provide interim financing for the authority's capital projects. It is expected that the notes will be refinanced with long-term bonds later this year.
The authority's strong margins largely reflect a stable revenue profile, even during the most recent recession, and an ability to grow revenues to meet escalating debt service obligations. Consistent with past performance, the authority posted healthy financial results in 2011, primarily supported by a partial-year toll rate adjustment implemented in September 2011 and on-going tight control over operations and maintenance expenses. In 2011, debt service coverage per the indenture was a robust 3.11x, in line with historical results and an increase from 2.73x in 2010. Through the first quarter of 2012, authority revenues are reported to be running approximately $20 million below expectations while operating expenses are tracking below budget by a similar amount.
The September 2011 multi-phased toll and PATH fare increase should allow the authority to maintain its financial profile while continuing with its complex and costly capital plan. The authority is currently evaluating the plan as part of an audit process requested by the governors of New York and New Jersey and expects to formalize the capital plan after phase II of the audit is completed later this month. Fitch notes that the authority has started to slow debt amortization and moderately backload principal repayment; however, it is Fitch's expectation that the authority will continue to adjust its levels of capital spending to generate DSCRs consistent with the current rating. Should the revised capital plan call for a marked changed in the authority's leverage or historically solid liquidity levels, there could be downward pressure on credit quality.
A key ongoing risk to the credit is the authority's funding participation in redevelopment of the World Trade Center (WTC) site. In 2011, the authority issued approximately $1.67 billion in consolidated bonds on construction and rebuilding efforts at the site. This elevated level of spending for the WTC site is estimated to continue in 2012, with the authority budgeting approximately $2 billion in order to substantially complete the rebuilding efforts. Due to the high priority of this project, the authority has deferred certain capital projects at LaGuardia Airport (LGA), Newark Liberty International Airport (EWR), and the Port Authority's Bus Terminal although the revision to the plan will likely accelerate projects for these facilities.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Aug. 5, 2011);
--'Rating Criteria for Ports' (Sept. 29, 2011);
--'Rating Criteria for Airports' (Nov. 28, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Toll Roads, Bridges, and Tunnels
Rating Criteria for Ports
Rating Criteria for Airports