Delaware River Port Authority board members continue to push for a delay of toll and fare increases as its financial advisers warn of potential credit-rating downgrades and fiscal pressures the bistate agency may face if it postpones future revenue enhancements.
While the DRPA's board Wednesday tabled a resolution to delay a $1 bridge-toll increase from July 2011 to July 2012, officials will further review how the agency can postpone the hike and avoid downgrades. The board discussed the issue of delaying the toll hike and how that might affect the DRPA during a special four-hour meeting.
It is anticipated that the board will move to vote on delaying the July 1 toll hike at its Dec. 15 meeting. It could also vote at that meeting on postponing a 10% fare increase on its light-rail Port Authority Transit Corp., or PATCO, line. The fare boost is set for Jan. 1. Commissioner Jeffrey Nash, vice chairman of the board and a Camden County freeholder, would like to move that fare increase to July 1, the same start-date as the toll increase, or later.
While the board would like to ease costs for its customers and delay toll and fare increases, DRPA staff and its outside financial advisers, Acacia Financial Group Inc. and Public Financial Management Inc., have repeatedly warned the commissioners that Moody's Investors Service and Standard & Poor's are keeping on eye on DRPA toll increases.
If Moody's and Standard & Poor's both downgrade the authority by one notch, it would face a $220 million swap termination or collateralization payment to UBS Securities LLC, counterparty on two DRPA swaps. Making that payment would shrink the authority's general fund to between $20 million and $30 million, and could prompt further downgrades John Hanson, DRPA's chief financial officer, said in a phone interview.
A one-notch downgrade by either rating agency would prompt higher costs on the DRPA's letters of credit and boost those expenses by about 20 basis points a year, or $1.2 million to $1.3 million of additional debt-service payments annually, Hanson said.
If the toll debate prohibits the DRPA from finalizing its 2011 operating budget by Dec. 31, that could turn its $700 million of variable-rate bonds into bank bonds. That would require the authority to pay an 11% interest rate on the variable-rate bonds, unless it refinanced the debt into fixed rate. Hanson considers that a "doomsday" scenario, but did educate the commissioners on that potential risk.
"What we would do is we would find a way to refinance those bonds and we would take them away from whoever the bank was that did that and we would wind up doing business with somebody else," Hanson said.
Moody's rates the DRPA's $1.3 billion of outstanding debt A3 with a negative outlook. Standard & Poor's rates the credit A-minus with a stable outlook.
Peter Nissen, managing director at Acacia Financial, estimates that a one-notch downgrade by one rating agency could require the authority to pay 40 to 50 basis points more when borrowing in the future, costing $2 million to $3 million in additional debt service each year.
If the board delays the July 1 toll increase, it will be the DRPA's second toll-hike postponement. The tolls were set to increase on Sept. 1 but the board pushed that $1 toll hike to July 1, 2011 at its December 2009 meeting.
"The postponement in additional toll increases will be an important factor in the rating moving forward given the size of the anticipated capital program and the revenues needed to support such a large program," Moody's said in a March 25 report.
Standard & Poor's analyst Adam Torres said the rating agency is concerned about the DRPA issuing new-money debt absent a toll increase."If it's delayed and they still go forward with plans to issue additional debt in 2011 as they had planned to, then it would be a concern," he said.
Hanson anticipates the DRPA would need to issue new-money debt in late 2011 or early 2012 as capital funds on hand will run out by that time.