NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned 'AA-' ratings to the Port Authority of New York and New Jersey (PANYNJ)'s $2.0 billion 192, 193 and 194 series consolidated bond issuances. Proceeds from these issuances are expected to refund PANYNJ's outstanding consolidated bonds series 141, 142, 144 and 148 as well as to provide $700 million towards the authority's planned capital expenditures.
Fitch has also affirmed the ratings for the authority's existing debt as follows:
--$19.54 billion in outstanding 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 for the authority's consolidated bonds is Stable.
The ratings are supported by PANYNJ's mature, diverse and monopolistic asset base which includes certain very strong airport and bridge/tunnel assets, and are further supported by the authority's conservative debt structure and moderate leverage, with debt service coverage ratio (DSCR) expected to be managed at or above 1.8x. The authority's extensive capital plan and guardianship of significantly loss-making assets constrain the rating. However, to the extent that recommendations made by a special panel appointed last year are implemented, a greater concentration on its core mission relating to critical transportation infrastructure in the region would be considered a credit positive.
KEY RATING DRIVERS
Resilient, Stable Revenue Base - Revenue - Volume Risk: Stronger
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, and 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.
High Rate-Setting Flexibility - Price Risk: Stronger
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 - although the authority retains significant economic rate-making flexibility, at some point continued toll increases will affect travel demand and the underlying economy. 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.
Extensive Debt-Funded Capital Plan - Infrastructure Development & Renewal: Midrange
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, is a positive development and should allow PANYNJ to manage a sustainable leverage profile.
Conservative Capital Structure - Debt Structure: Stronger
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 - Financial Metrics
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 have debt 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 capital needs and additional leverage 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 term on account of the authority's large capital plan.
TRANSACTION SUMMARY
PANYNJ is issuing consolidated bonds series 192, 193 and 194 to refund the approximately $1.4 billion outstanding balance of its consolidated bonds series 141,142, 144 and 148 and to fund planned capital expenditures.
Net operating revenue before depreciation and amortization for the first six months of 2015 was $923.7 million, 15.5% up on the same period in 2014. This largely reflected the effect of a $74 million (12%) increase in rental revenues, driven by increases to fixed and variable airport rental rates as well as the opening of parts of the World Trade Center in November 2014. Toll revenues generated by PANYNJ's bridges and tunnels also increased by $64 million, reflecting the scheduled toll increase that was implemented in December 2014 as well as a 1.1% increase in traffic in the period versus the same period last year. PATH revenue also increased $8 million, or 1.4%, reflecting the combined effect of a 1.9% increase in ridership as well as scheduled fare increases. The increase in net operating revenue also reflects growth in operating expenses in the period being managed to 1.4%, even taking into account additional operating costs associated with the newly opened portions of the World Trade Center.
PANYNJ has announced that the governors of New York and New Jersey have jointly written a letter to the president of the United States describing the critical need for a new Hudson River rail tunnel, whose total cost is estimated at $20 billion, and that the Port Authority would take the lead on the project if federal funding for half the project is received and the project is approved by PANYNJ's board of directors. Fitch understands that planning for this project is at a very preliminary stage and that the balance of funding sources has yet to be determined. To the extent that PANYNJ is requested to fund a portion of this capital expenditure, Fitch will analyze its impact on the authority's credit in accordance with the rating sensitivities previously stipulated.
For more information on the authority and its recent performance, please refer to Fitch's press release dated May 15, 2015 titled Fitch Rates Port Authority of New York & New Jersey's Consolidated Bonds 'AA-'.
SECURITY
Consolidated bonds and notes are secured by net revenues of the authority and a pledge of the general reserve and consolidated bond reserve funds.
Additional information is available at '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. 28 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870967
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. 29 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870170
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=991829
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991829
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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