NEW YORK - Moody's Investors Service has placed the ratings on Battery Park City Authority's Senior Revenue Bonds on watch for possible downgrade, including the Aaa rating on the Senior Lien Bonds (approximately $466 million outstanding) and the Aa3 rating on the Junior Lien Revenue Bonds (approximately $621 million outstanding; total debt outstanding approximately $1.092 billion). This action was taken as result of the agreement recently announced by Battery Park City Authority (BPCA) and the City of New York to transfer, to the extent available over time, a total of $861 million of residual funds from the Authority to the City, the State and a City agency, including a current transfer of available funds (approximately $267.5 million) with the balance to be transferred annually to the extent available.
BPCA is a public benefit corporation that owns Battery Park City, a large mixed office and residential community located near the Southern tip of Manhattan in New York City. The Bonds are secured by a pledge of BPCA's revenues consisting of ground lease payments on the diverse and high-quality portfolio of office and residential properties that comprise Battery Park City, as well as by a debt service reserve fund.
BPCA's funds after payment of its administrative expenses and bond debt service flow annually to a residual fund and are divided between "7 Ai" funds, representing the proportion of the funds that represent payments in lieu of property taxes, that are transferred directly to the City, and "7 Aii" funds, that are deposited in a Joint Purpose Fund with BPCA. Funds in the Joint Purpose Fund are used as jointly determined by BPCA, the Mayor of New York City and the Comptroller of New York City. In recent years substantial balances have been retained in the Joint Purpose Fund; as of 10/31/08 the balance was $215.4 million, and as of 10/31/09 and $267.5 million. These funds are not pledged to the Bonds. However, Moody's has considered the balance of residual funds that could be used for BPCA purposes if necessary (subject to City agreement) to be a factor in the BPCA's credit strength and a contributor to the high levels of ratings assigned to the Bonds. Moody's is placing the Bonds under review for downgrade pending assessment of the impact of the withdrawals on the ratings.
For further information, please see Moody's High Profile New Issue Report on Battery Park City Authority dated December 2009 (report number 121587).
The ratings assigned to Battery Park City Authority's Senior Revenue Bonds were issued on Moody's municipal rating scale. Moody's has announced its plans to recalibrate all U.S. municipal ratings to its global scale and therefore, upon implementation of the methodology published in conjunction with this initiative, the rating will be recalibrated to a global scale rating comparable to other credits with a similar risk profile. Market participants should not view the recalibration of municipal ratings as rating upgrades, but rather as a recalibration of the ratings to a different rating scale. This recalibration does not reflect an improvement in credit quality or a change in our credit opinion for rated municipal debt issuers. For further details regarding the recalibration please visit www.moodys.com/gsr.
The last rating action on the outstanding bonds was on December 2, 2009 when ratings were assigned to the 2009 Series Bonds and the ratings on outstanding debt were affirmed. BPCA's bond ratings are assigned by evaluating factors believed to be relevant to the credit profile of the instrument such as i) the business risk and competitive position of the issuer versus others within its industry or sector, ii) the capital structure and financial risk of the issuer, iii) the projected performance of the issuer over the near to intermediate term, and iv) the issuer's history of achieving consistent operating performance and meeting budget or financial plan goals. These attributes were compared against other issues both within and outside of BPCA's core peer group and their ratings are believed to be comparable to ratings assigned to other issuers of similar credit risk.