OREANDA-NEWS. Fitch Ratings has published its 'A' rating for the Port Authority of New York and New Jersey's (PANYNJ) Bondholder Support Payment Obligations (4 World Trade Center) to 4 World Trade Center LLC (4 WTC), providing credit support to bonds issued by New York Liberty Development Corporation (NY) on behalf of 4 WTC (the 4 WTC bonds). The Rating Outlook is Stable.

The previously private rating utilized internally by Fitch in rating the 4 WTC bonds ('A'/Stable) has been published in conjunction with the assignment of public ratings to various counterparty obligation ratings supporting other Fitch-rated projects.

The 'A' rating considers the terms of the subordinated special obligation payment stream in their totality vis-a-vis their priority within PANYNJ's Consolidated Bond Resolution. Although PANYNJ's subordinated special obligations rank, in theory, on par with its versatile structured obligations (VSO) debt lien, Fitch takes the view that the unsecured nature of the subordinated special obligations in effect subordinates them behind the VSO lien, resulting weaker credit profile.

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, 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 8.0x -8.5x range over the 2015 - 2019 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 1.8x.

The Fitch rating case highlights the importance of rental activity related to World Trade Center to PANYNJ's credit profile over the coming years. Including net 4WTC obligations (but reflecting the benefit of the NYC space lease in place), coverage remains at around 2.0x until 2019, when it falls to around 1.7x.

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.

For more information on the authority and its recent performance, please refer to Fitch's press releases dated Nov. 13, 2015 titled 'Fitch Rates Port Authority of New York & New Jersey's Commercial Paper Obligations 'F1+' and dated Oct. 5, 2015 titled 'Fitch Rates Port Authority of New York & New Jersey's Consolidated Bonds 'AA-'.