The Port Authority of New York and New Jersey goes into the market this week with $750 million of taxable bonds to finance construction at the World Trade Center site as uncertainty lingers over the project's future.
Developer Silverstein Properties Inc., which holds the lease to the site and development rights for three towers, has asked the Port Authority to act as a guarantor for as much as $3.2 billion of construction loans, but the agency has balked. According to published reports, it agreed to backstop $1.2 billion for one tower.
New York City Mayor Michael Bloomberg last week extended into the weekend talks between Silverstein, the Port Authority, and city and state officials to find a solution to the impasse. Last week, retail developer Westfield Properties added a wrinkle with a proposal invest more than $1 billion to develop retail space at the site.
Port Authority spokesman Steve Coleman and Silverstein spokesman Bud Perrone declined to speak about the negotiations.
This week's bond deal is scheduled to price on Thursday and will not have a retail order period.
The authority is marketing the debt as consolidated bonds, rather than project bonds, in three series. Series 157 bonds mature in 2019 with a par of $150 million. Series 158 mature in 2024 and have a par of $250 million. Series 159 have a par of $350 million and mature in 2029. The bonds are not callable.
Citi and Loop Capital Markets LLC will manage the sale. The Port Authority is using in-house bond counsel Darryl Buchbinder on the deal.
The authority generally sells its bonds competitively and remains committed to the competitive market, but took a different approach on this deal, Coleman said.
"These transactions are getting done on a negotiated basis to ensure evenhanded access to the taxable municipal capital markets where there is currently a lack of interest in competitive deals," he said. The bonds are not subject to redemption because the taxable market has a demand for bonds that are either not callable or have a make-whole provision and the authority chose the former, he said. The Port Authority is selling the bonds now because construction has progressed to the point where they need more funds to continue, Coleman said.The authority estimates that it will sell, in aggregate, $4 billion of bonds to rebuild the site.
Looming over the talks are the expiration, at the end of the year, of the authorization of $3.29 billion of Liberty bonds to finance the construction of towers on the site.
The Port Authority was allocated $701.6 million of bonds under the federal program enacted by Congress to revitalize New York City following the Sept. 11, 2001, terrorist attacks. The federal government authorized $8 billion of private-activity bonds to be sold outside of New York State's annual cap. The New York City Industrial Development Agency would issue the bonds on behalf of the authority to partially finance the $3.1 billion, One World Trade Center project.
Coleman said the authority is seeking an extension of the Liberty bond authorization beyond this year.
Silverstein was allocated $2.59 billion of bonds to help finance the construction of towers 2, 3, and 4 on the site. Those bonds are to be issued through the Liberty Development Corp., a subsidiary of the Empire State Development Corp.
Another factor pushing for a speedy resolution is payments that could be due to Goldman, Sachs & Co. if certain project and security deadlines are not met by the end of the year. Bloomberg News reported last week that Goldman could be entitled to $321 million under the terms of their lease agreement on their new headquarters which sits adjacent to the site.
Moody's Investors Service rates the Port Authority's outstanding consolidated bonds Aa3. Standard & Poor's and Fitch Ratings both assign AA-minus ratings to the credit. The authority has approximately $11.2 billion of debt outstanding.
