Fitch Affirms New Jersey Economic Development Authority's PABs at 'BBB-'; Outlook Stable
NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'BBB-' rating on the $460.9 million private activity bonds (PABs) issued by the New Jersey Economic Development Authority on behalf of NYNJ Link Borrower LLC (NYNJ Link) for the Goethals Bridge Replacement Project (the project).
Additionally, Fitch has also affirmed the 'BBB-' rating on the $473.6 million (excluding capitalized interest) Transportation Infrastructure Finance and Innovation Authority (TIFIA) loan to NYNJ Link.
The Rating Outlook remains Stable.
The rating reflects progress to date with the project on schedule, and with sufficient funding, to achieve completion prior to the long-stop date. Once operational the project will receive a stable revenue stream from a highly rated revenue off-taker in the Port Authority of New York and New Jersey. In addition, the project's operations will be self-performed by the developer which includes Macquarie Infrastructure and Real Assets bringing with it significant experience on similar assets worldwide.
KEY RATING DRIVERS:
Experienced Contractor with Sufficient Security Package: Kiewit Infrastructure Co. (70%), Weeks Marine Inc. (15%), and Massman Construction Co. (15%), all of which have significant experience with similar projects, comprise the Design-Build Joint Venture (DBJV) contractor. Design-build requirements are passed down from the developer to the DBJV contractor. The security package includes a parent guarantee from Kiewit Infrastructure Group Inc.
Completion Risk: Midrange
Availability Payments Supported by Strong Counterparty: Payments supporting construction and operations will be derived from The Port Authority of New York and New Jersey (senior lien bonds rated 'AA-'; versatile structure obligations rated 'A+' and special obligations rated 'A'; Outlook Stable for all). Developer Financing Arrangement (DFA) payments will escalate at 1.5% annually while operational maintenance (OM) and capital maintenance (CM) payments will be indexed to regional consumer price index (CPI) and subject to availability and performance deductions.
Revenue Risk: Midrange
Low Operation Risk: Operational functions are expected to be self-performed by NYNJ Link Developer LLC which is ultimately a subsidiary of MIP III (a fund managed by Macquarie Infrastructure and Real Assets (MIRA) (90% interest) and Kiewit Development Company (KDC) (10% interest). MIRA has extensive experience managing assets in the public private partnership space.
Operation Risk: Midrange
Adequate Lifecycle Funding: A forward looking Major Maintenance Reserve and Handback Reserve are present to cover expected life cycle costs.
Infrastructure & Renewal Risk: Midrange
Fixed Rate, Fully Amortizing Debt with Standard Reserves: The debt service profile consists of fixed rate debt with no refinance risk. The covenant package is considered to be adequate, with debt service reserve funds equal to six months of debt service and a robust equity lock-up trigger of 1.20 times (x).
Debt Structure: Midrange
Sufficient Coverage Ratios although High Leverage: The projected average coverage in Fitch's ratings case is 1.28x and drops to a minimum of 1.16x, consistent with the assigned rating and peer group. Leverage is slightly elevated at 16x net debt to cash flow available for debt service in 2018.
--Construction delays beyond scheduled substantial completion and anticipated final acceptance dates if not properly mitigated could result in negative rating action;
--Significant payment deductions during construction and operations that reduce coverage levels well below current projections could result in negative rating pressure;
--Considerable deterioration of financial counter-parties leading to a weakening in the credit profile of the project could negatively impact the rating;
--Successful completion and sustained operating performance could result in a higher rating.
The PABs are secured by a first priority lien on NYNJ Link net revenues. The TIFIA Loan is secured on a subordinate basis. Senior lien bonds and the subordinated TIFIA loan will be paid from funds available in the Port Authority of New York and New Jersey's (PANYNJ) Consolidated Bond Resolution Fund (CBRF) that are subordinate to the authority's consolidated revenue bonds and deposits to required reserves.
The lender's technical advisor (Arup) has opined that the project is on track to be completed prior to the long-stop date and that funding remains sufficient to complete the project. In its most recent report (April 2014) Arup noted several items that had been delayed thus far, most notably the delay in the removal of the Corey Warehouse on the New Jersey side of the project. However, Arup indicated there is sufficient float built into the schedule as well as the ability to re-sequence work and add additional resources which should allow the DBJV to mitigate any delays to date and achieve substantial completion as originally anticipated.
The commencement of the eastbound main span foundations is currently a critical focal point of the Project. The drill shafts and the cofferdam are the principle activities for the foundations on the New York and New Jersey sides. Commencement of the New Jersey drill shaft is currently scheduled for July 1st and the New York drill shaft is scheduled to commence in September. Work to date has consisted of design of the foundations, temporary trestle and drill platform as well as the mobilization of resources needed for water access.
NYNJ Link reported no significant problems with the Project and expressed the view that overall the Project is proceeding as expected. The delay in the removal of the Corey Warehouse, due to a required increased level of environmental abatement, has hindered the construction offices from moving to the site. The Port Authority owns this risk and therefore controls the process; NYNJ Link expects the issue to be resolved in the next couple months. The Port Authority and NYNJ Link appear to have a good working relationship which in Fitch's view will be key to dealing with any unanticipated issues as they arise. The right of way acquisition is on schedule and funding draws to date are consistent with projections.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance,' (July 12, 2012);
--'Availability-Based Rating Criteria' (June 18, 2013).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for Availability-Based Projects