2008-12-02 01:12:05 -
Fitch Ratings assigns an 'F1+' rating to the Port Authority of New York and New Jersey's (the authority) $300 million of consolidated notes, series ZZ. The notes are expected to sell competitively on or about Dec. 3, 2008 through a competitive sale and have a final maturity of Dec. 1, 2011. Consolidated bonds and notes are secured by net revenues
of the authority and a pledge of the general reserve and consolidated bond reserve funds. Note proceeds may be allocated to any purpose for which the authority is authorized to issue its obligations.
Fitch also affirms the underlying ratings on the following authority bonds:
--$10.8 billion consolidated bonds at 'AA-';
--$399.7 million versatile structure obligations series 1 through 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 demonstrated ability of the authority to manage operations and an expansive capital plan simultaneously.
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 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. Approximately 60% of capital expenditures are devoted to maintaining the authority's pool of assets in a state of good repair; 20% is allocated to mandatory capital investment and the remaining 20% is discretionary. 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 portion of the capital plan, significant and timely adjustments would most likely be necessary in maintaining credit metrics commensurate with the rating. Furthermore, 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. 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.
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. However, the weakness of state and city economies could pressure this to some degree. 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 have exhibited substantial resiliency system-wide. Current data available shows international travel continues to grow at JFK and EWR, largely offsetting domestic flight cuts and yielding slightly decreased regional traffic volumes of 1.3% when compared with passenger totals through September in 2007. Fitch notes the low reduction in passenger traffic levels when compared with other large hub airports.
The authority showed 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 WTC Sept. 11 revenues) of approximately $1.6 billion provided 2.8 times (x) debt service coverage and is expected to be above 2.0x in 2008, with approximately $399 million of excess revenues added to authority reserves. For 2008, estimated operating results indicate continued healthy financial margins despite unbudgeted increases in operating expenses. In 2008 the authority experienced higher costs in connection with the assessment of liquidated damages and delays in turning over various components for Towers 2, 3, and 4 of the World Trade Site. Yet, despite these increases the authority forecasts net operating income to increase by approximately $600 million in 2008, reflecting primarily the recent implementation of higher toll rates. Current financial data available indicates the authority's net operating income is 9.5% higher when compared to the corresponding time period in 2007, and net operating income will be approximately 2% higher than originally estimated in 2008. 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 ($245 million) in 2008 mainly due to the receipt of insurance proceeds and third-party contributions associated with WTC site re-development. For a more detailed report, please see the Fitch report dated May 21, 2008, available at www.fitchratings.com.
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
Vanessa Roy, +1-212-908-0508
Michael McDermott, +1-212-908-0605
Cindy Stoller, +1-212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com 
