Coronavirus restrictions push down Port Authority credit outlook
The Port Authority of New York and New Jersey received its second negative credit outlook in a two-week span as the coronavirus has reduced volume at its bridges, tunnels, airports and PATH system.
Fitch Ratings revised the Port Authority rating's outlook to negative from stable while affirming the bi-state agency's AA-minus rating Friday, citing its financial toll from government restrictions limiting travel throughout the region. The action affects $22.2 billion of outstanding parity consolidated bonds.
“The negative outlook reflects the substantial adverse impact on operating performance due to the recent outbreak of the coronavirus and related worldwide containment measures, along with uncertainty around the timing and magnitude of recovery,” Fitch analyst Stacey Mawson wrote. “Measures to restrict nonessential travel and stay at home orders to stop the spread of the virus are impacting activity volumes at varying levels across the majority of PANYNJ's transportation facilities including airports, seaports, bridges and tunnels, and mass transit.”
Moody’s Investors Service revised the Port Authority’s rating outlook to negative from stable on April 9, citing volume dips across its transportation assets. Moody’s rates Port Authority debt on par with Fitch at Aa3 and S&P Global Ratings at AA-minus. S&P revised the Port Authority and all of its long-term credits in the U.S. transportation infrastructure sector to negative on March 26.
The Port Authority press office did not immediately respond to a request for comment on the outlook change.
Passenger volumes at Port Authority airports and the agency’s PATH transit system dropped more than 90% in March compared to the year-ago period, according to Fitch. Automobile usage on Port Authority bridges and tunnels was 61.3% lower last month, with truck traffic dipping 27.6%. March cargo volume at the agency’s ports dipped 22%, but is projected to improve in April as production in China increases.
Tenants who pay rent to operate at Port Authority facilities have also been negatively affected by reduced volume, with some unable to meet their full obligations, according to Mawson. The Port Authority announced a temporary deferral of certain fees and rental costs at its three major airports and airlines will be also permitted to defer certain fees until June. The agency is estimating lower concession revenues of $7.5 million and roughly $175 million in deferred cash flow.
“The corresponding decline in operating revenues as well as challenges to reduce costs at commensurate levels are expected to result in a narrowing of coverage levels for the Authority's aggregate debt and payment obligations, although current fund balances as well as allocated federal assistance moneys provide near-term financial flexibility,” Mawson said. “The steep reductions in activity volumes while the coronavirus period persists will put downward pressure on operating revenues in the absence of additional board actions.”
The Port Authority received $450 million of Federal Aviation Administration grants for its airports under the CARES Act. The agency is also seeking additional federal funds that Port Authority Executive Director Rick Cotton says are critical to maintaining its ongoing $37 billion, 10-year capital program. The capital plan is funding large-scale redvelopment projects at the Port Authority's three major airports, LaGuardia, Kennedy and Newark Liberty.
“The decline in our revenues is threatening our ability to go forward as planned with the capital plan,” Cotton said during the Port Authority’s monthly board meeting last Thursday. “We are asking the federal government for support in order to keep the capital plan intact.”