TEXT - Fitch rates Pt. Authority of NY & NJ consolidated bonds

Tue Dec 4, 2012 2:03pm EST

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Dec 4 - 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. 

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. 

TRANSACTION SUMMARY 

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.
FILED UNDER:
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