Coronavirus headwinds fuel another downgrade to JFK Airport bonds

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A decline in travel caused by the coronavirus pandemic sparked a second downgrade in six weeks to Port Authority of New York and New Jersey-issued bonds sold for financing an expansion project at John. F. Kennedy International Airport.

Fitch lowered the Port Authority’s senior secured series 6 and 8 special project bonds issued of behalf of JFK International Air Terminal LLC one notch to BBB from BBB-plus late Friday citing a “significant” drop in passenger volume at the airport during the ongoing health crisis that began in March. The roughly $1.3 billion of outstanding bonds were also assigned a negative outlook.

Bonds that financed Delta's international terminal at John F. Kennedy International Airport were downgraded by Fitch Ratings due to declining passenger volume caused by the COVID-19 pandemic

The rating is now level with S&P Global Ratings, which also downgraded the JFK bonds one notch to BBB in early June.

“The passenger levels have been very depressed,” said Fitch analyst Seth Lehman. “It’s going to take more time to get to the starting point of a recovery.”

The Port Authority sold $934 million of the series 6 bonds in 1997 for construction JFA Airport’s Terminal 4, which serves as an international hub for Delta Airlines. The bi-state agency issued $796.28 million of the series 8 bonds in 2010 to fund a $1.2 billion expansion of the terminal.

The bonds are secured by facility rental payments made by Delta to the Port Authority.

Passenger volume in Terminal 4 dropped 98% in April compared to 2019 levels as travel restrictions and border closures weighed on activity, according to Lehman. While passenger numbers improved in May and June, Lehman noted, the terminal’s current average volume of 7,000 to 8,000 per day only comprises around 12% of last year’s daily average.

Weak traffic volume is expected to continue in the near-term due to recent spikes of COVID-19 infections in more than 20 states that have resulted in travel restrictions, he added. New York State has also implemented a 14-day self-quarantine requirement for passengers from U.S. domestic airports in areas with high rates of new infections, which Lehman said could also negatively impact airline booking schedules.

The burden may fall largely on Delta, which represents over 70% of passenger traffic in the terminal, according to Fitch. Delta received $5.4 billion in federal CARES funding to help offset COVID-19-related losses.

The Port Authority has issuer ratings of AA-minus from Fitch, A-plus from S&P and Aa3 from Moody’s Investors Service. The agency had $22.2 billion of outstanding consolidated bonds as of March 31, according to an April 14 disclosure to bondholders.

The Port Authority and Delta press offices did not immediately comment.

Nicole Gelinas, a senior fellow at the Manhattan Institute for Policy Research, said the JFK bonds face “significant” looming challenges because of Delta scaling back previous plans to add flights, coupled with losing out on “higher-priced” international travelers. She noted airline passenger revenue is a major component of the Port Authority’s financial model and the uncertain length of the COVID-19 pandemic will create barriers for the agency’s planned $13 billion JFK redevelopment project.

“They are going to have to, at minimum, rethink their terminal redevelopment plans at JFK,” Gelinas said. “There is no indication that airlines or airplane passengers will be in any position to fund these expansions anytime in the next half-decade, even longer.”

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