NEW YORK--()--Fitch Ratings assigns an 'AA-' rating to the Port of Authority of New York and New Jersey's (the authority) $425 million consolidated bonds, series 175 and $170 million consolidated bonds, series 176.
Fitch also affirms the ratings on the authority's existing debt as follows:
--$17.8 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 the authority's consolidated bonds 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 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.
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 series 175 and series 176 consolidated bonds will be offered via competition on Dec. 5. Approximately $150 million in series 175 bond proceeds will be used for capital projects at the authority's bridge and tunnel facilities, while the balance will be applied toward refinancing outstanding authority bonds for debt service savings. Series 176 bond proceeds will be used for general authority purposes.
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. As noted in the proposed 2013 operating budget, authority gross operating revenues for fiscal 2012 are expected to be approximately $72 million below expectations while operating expenses are projected to exceed budgeted expectations by approximately $110 million. The proposed 2013 operating budget continues to reflect the authority's efforts to restrain growth in operating expenses. Budgeted operating expenditures for fiscal 2013 are relatively flat to budgeted 2012 levels and 3.5% below presently estimated fiscal 2012 expenditures.
While the September 2011 multi-phased toll and PATH fare increases had been expected to allow the authority to maintain its financial profile while continuing with its complex and costly capital plan, Fitch is concerned that slower than expected revenue growth may create difficultly in completing the plan as last envisioned. The results of the audit process requested by the governors of New York and New Jersey indicate a significant amount of capital needs are on the authority's horizon, though such needs have not yet been factored into the authority's current capital planning. Additionally, the impact of Hurricane Sandy has triggered a reprioritization of capital needs and greater clarity on this front will not be available until early next year. Fitch understands that some flexibility in the undertaking of these projects is likely and Fitch expects that the authority will continue to adjust its levels of capital spending to generate DSCRs consistent with the current rating. Should future authority capital plans call for a marked changed in the authority's leverage or historically solid liquidity levels, downward pressure on credit quality would be likely.
A key ongoing risk to the credit is the authority's funding participation in redevelopment of the 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' (July 12, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Aug. 5, 2012);
--'Rating Criteria for Ports' (Sept. 27, 2012);
--'Rating Criteria for Airports' (Nov. 27, 2012).
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