Empty airports and bridges bring Port Authority a negative outlook

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Declining volume across the Port Authority of New York and New Jersey's transportation assets brought the bi-state agency a negative rating outlook.

Moody’s Investors Service revised the outlook of the Port Authority’s Aa3-rated senior revenue bonds to negative from stable Thursday, citing near-term fiscal challenges prompted by government restrictions to contain the virus that have limited travel in New York and New Jersey. Moody’s concurrently affirmed the Port Authority’s Aa3 revenue bond rating and its A1-rated bank bonds.

A departures board lists multiple canceled flights at the Port Authority's John F. Kennedy International Airport in New York Thursday.

Those restrictions have removed traffic from the authority's toll bridges and passengers from its three airports.

The Aa3 Moody’s rating is on par with S&P Global Ratings and Fitch Ratings, which both rate Port Authority debt at AA-minus. The entity ended 2019 with $23.9 billion in outstanding bonded debt, a 5.5% jump from the previous year.

“The change in the outlook to negative was prompted by the unprecedented coronavirus (COVID-19) restrictions globally that are expected to continue to lead to a substantial decline in traffic and passenger volumes across the Port Authority's infrastructure assets,” Moody’s analyst Kathrin Heitmann wrote. “The weaknesses in the PANYNJ's credit profile, including its exposure to a reduction in air travel and traffic volumes have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions.”

The Port Authority is expected to receive roughly $435 million in federal stimulus funding under the federal CARES coronavirus relief act. Heitmann said this amount is unlikely to mitigate expected revenue decline across its infrastructure assets in 2020.

As of Dec. 31, 2019, the Port Authority had around $2.4 billion in its general reserve fund that and around $1.6 billion in a consolidated bond reserve fund. The general reserve fund is pledged in support of all issued outstanding consolidated bonds.

“The Port Authority has a substantial amount of reserves,” said Mitchell L. Moss, director of New York University’s Rudin Center for Transportation and Management. “They have a lot of cash and interest rates have gone down so much that they could refinance a lot of its debt.”

Moss said when government shutdowns of non-essential businesses are lifted the Port Authority will benefit from revenues on heavily traveled toll crossings like the George Washington Bridge. He stressed that the agency would struggle to reclaim lost revenues at its three major airports, LaGuardia, Kennedy and Newark-Liberty this summer, but that over the long-term, air travel into New York should return to previous levels.

“The Port Authority has access to revenue-producing resources, some of which are coming from outside the region,” Moss said. “The Port Authority has a good mix of revenues with trucks, cars and planes.”

The Port Authority is in the midst of a $37 billion, 10-year, airport capital plan. The agency is also planning a new Manhattan bus terminal and has committed a $1 billion investment aimed at increasing capacity on its century-old PATH rail transit system.

Heitmann said the Port Authority’s ability to preserve liquidity reserves and maintain solid debt coverage is predicated on “swiftly reducing” operating expenditures and capital spending. She added that the agency risks a rating downgrade if there are revisions to the capital plan that jeopardize maintenance of important revenue-generating assets.

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Coronavirus Ratings Infrastructure New York New Jersey Port Authority of New York & New Jersey