NEW YORK--()--Fitch Ratings has affirmed its 'AA-' underlying rating on the New York Liberty Development Corporation's (NYLDC) $672.48 million liberty revenue bonds (tax-exempt) series 1WTC-2011. The bonds have a final maturity in 2043. Bond proceeds were used to purchase the Port Authority of New York and New Jersey's (the authority) 170th series consolidated bond, the proceeds of which will be used to fund construction costs at One World Trade Center (1WTC).
The credit profile and Rating Outlook will be driven by the rating on the Port Authority's consolidated notes and bonds (currently rated 'AA-', Stable Outlook by Fitch). The Rating Outlook is Stable.
KEY RATING DRIVERS FOR AUTHORITY BONDS
--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 8.1x 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, though recent completed audit reports indicate capital needs may be significantly greater than presently expected over the next 10 to 15 years. Fitch will continue to review developments with respect to the authority's capital program, specifically the authority's attention to maintenance of the asset base as well as expected leverage levels.
WHAT COULD TRIGGER A RATING ACTION
--Weaker financial margins due to slow revenue growth and/or higher rates of growth in operating expenses;
--Significant escalation in expected capital needs and additional leveraging not supported by commensurate revenue increases to maintain DSCRs at or above 1.8x-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.
The bonds are special obligations of NYLDC and are secured by the trustee's right, title, and interest in the consolidated bond and bond fund. The authority's 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 Port Authority requested the NYLDC to issue its liberty revenue bonds in order to finance a portion of the construction costs associated with 1WTC, thus allowing for the use of tax-exempt financing under the Liberty Bond Program, which expired at the close of 2011. The NYLDC is a not-for-profit corporation and has no employees or business operations. All NYLDC bonds issued have been done on behalf of other obligors. Given this, Fitch views the risk of an involuntary bankruptcy filing by the NYLDC as consistent with the rating assigned. The bonds issued by NYLDC are non-recourse, special, and limited obligations of the NYLDC payable only from revenues received from the Port Authority. All right in these payments has been assigned to the trustee.
The Port Authority is responsible for the construction of 1WTC and remains the principal owner. Total world trade center construction costs are estimated at approximately $14.8 billion, and the remaining construction costs at 1WTC are estimated at approximately $1 billion. 1WTC construction is scheduled to be complete by the end of 2013 and approximately 55 percent of the commercial office space has been leased. Tenants are expected to occupy the leased space by late 2014.
For more information, please see Fitch's press release on the Port Authority dated Sept. 25, 2012, available on www.fitchratings.com.
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,' dated Aug. 16, 2011.