NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed/ the '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 (PANYNJ) 170th series consolidated bond (rated 'AA-'; Outlook Stable by Fitch), the proceeds of which will be used to fund construction costs at One World Trade Center (1WTC).
The rating reflects the fully pass-through nature of debt service payments on the Series 1 WTC - 2011 bonds to Port Authority of New York and New Jersey (PANYNJ, 'AA-'/Outlook Stable/'F1+'), reflecting the full collateralization of issued bonds with PANYNJ consolidated bonds, 170th series, whose terms mirror those of the 1 WTC - 2011 bonds and which were purchased with issuance proceeds.
KEY RATING DRIVERS
Revenue Risk - Volume: Stronger
Resilient, Stable Revenue Base: PANYNJ 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 comprising tunnels, bridges, terminals, and ferries, as well as seaports. Strong demand characteristics are underpinned by the region's diverse and populous economy as well as its status as a global center for commerce.
Revenue Risk - Price: Stronger
High Rate-Setting Flexibility: The authority has demonstrated an ability to produce consistently healthy financial performance, reinforced by strong cost recovery provisions in airline use agreements at airports and timely toll increases on its bridges and tunnels with minimal impact on traffic levels. This flexibility may, however, come under pressure if World Trade Center rental revenues do not develop as expected, if operating losses on Port Authority Trans-Hudson (PATH) transit network widen significantly or if the authority is required to take on additional operating loss-making assets. No expected toll increases on its bridges and tunnels after December 2015 until 2020 should allow some build up in pricing power on these facilities again.
Infrastructure & Renewal: Midrange
Extensive Debt-Funded Capital Plan: PANYNJ's 2014-2023 capital plan totals approximately $27.6 billion. Cost and delay risk are meaningful for a plan of this scale and complexity. These risks would be further compounded if PANYNJ was mandated by either state to take on additional non-core, non-revenue generating assets that could reduce future funding capacity for these capital works. Fitch is of the view that PANYNJ's desired capital investment funding balance of 60% cash, 40% debt (currently approximately 50% cash, 50% debt), which it expects to reach in 2018, should allow PANYNJ to manage a sustainable leverage profile going forward and would be supportive of a rating in the 'AA'-category.
Debt Structure: Stronger
Conservative Capital Structure: The authority maintains a nearly 100% fixed-rate, fully amortizing capital structure. It maintains a very healthy liquidity position with over $4.4 billion in its consolidated bonds reserve and general fund as at Dec. 31, 2014.
Moderate Leverage, Strong Coverage: Leverage is moderate, with 2015 net debt to cash available for debt service (CFADS), excluding grant income, is expected to be around 7.9x, reflecting both cash retained in the consolidated bond reserve fund and the general fund. In Fitch's rating case leverage remains around 8.0 - 8.5x range over the 2015-19 projection period. PANYNJ's debt service coverage ratios (DSCR), calculated excluding non-operating revenue except for passenger facility charges (PFC), are robust, and expected to remain at or above 2.0x in the Fitch rating case until 2019, when additional debt issuance causes it to fall to below 1.80x. The Fitch rating case highlights the importance of rental activity related to World Trade Center to PANYNJ's credit profile over coming years.
Peers: Although Fitch rates several other multi-sector issuers in the U.S. transportation infrastructure sphere, none have a similar level of asset diversity as, and few are of a similar scale to, PANYNJ. Furthermore, none of its closest peers face a similar multijurisdictional ownership or governance structure. The closest peers are Port of Seattle (senior lien rated 'AA'/Stable Outlook) and Massachusetts Port Authority (senior revenue bonds rated 'AA'/Stable Outlook), both of whose debt is secured primarily on airport and port revenue streams. PANYNJ's diverse and high profile asset base is a relative strength; however, significantly higher leverage and risk associated with its large capital plan coupled with its highly politicized operating environment place its ratings one notch below senior lien ratings for both peers.
RATING SENSITIVITIES
Negative - Weaker Operating Margins: Slow revenue growth and/or higher rates of growth in operating expenses could result in negative rating pressure;
Negative - Increased Capital Needs: Significant escalation in expected capital needs and additional leveraging not supported by revenue increases to maintain DSCRs at or above 1.8x-2.0x would reflect a deterioration in PANYNJ's credit profile;
Negative - World Trade Center Rentals: Lower revenue than currently forecast generated from the World Trade Center site as a result of weaker rental demand would increase pressure on PANYNJ's bridge and tunnel assets to meet the revenue shortfall and could pressure the rating;
Negative - Political Intervention: 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, or significant new non-core state-mandated investment that puts additional strain on cash generative core assets, would be detrimental for PANYNJ's ratings;
Positive - None expected in the near to medium terms on account of the authority's large capital plan.
SUMMARY OF CREDIT
PANYNJ requested NYLDC to issue 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. 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 NYLDC payable only from revenues received from PANYNJ. All right in these payments has been assigned to the trustee.
PANYNJ is responsible for the construction of 1WTC and remains the principal owner. 1WTC construction was completed earlier in 2014, and approximately 63% of the commercial office space has been leased. Principal tenants have taken handover of leased space and are currently fitting it.
For more information, please see Fitch's press release on the port authority dated May 15, 2015 and available at www.fitchratings.com.
SECURITY
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. PANYNJ's consolidated bonds are secured by net revenues of PANYNJ and a pledge of the general reserve and consolidated bond reserve funds.
Additional information is available on www.fitchratings.com
Applicable Criteria
Rating Criteria for Airports (pub. 13 Dec 2013)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=725296
Rating Criteria for Infrastructure and Project Finance (pub. 12 Jul 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867
Rating Criteria for Ports (pub. 16 Oct 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=795788
Rating Criteria for Toll Roads, Bridges and Tunnels (pub. 20 Aug 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=758708
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988500
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988500
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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