With an eye on its credit ratings, the Delaware River Port Authority chose to keep in place a $1 toll hike Wednesday that was set to begin July 1 after weeks of debate on whether to delay the increase to 2012.
While the commissioners did not alter the toll increase on DRPA's four bridges, they did postpone to July 1 from Jan. 1 a 10% fare boost on the light-rail Port Authority Transit Corp., or PATCO, line. That places both the toll and fare increases on the same schedule. PATCO connects southern New Jersey and Philadelphia and serves about 40,000 commuters a day.
The board also approved its fiscal 2011 operating budget and its fiscal 2011 capital budget.
The commissioners opted, in a vote of 15 to 1, to retain the July 1 toll hike to avoid having to implement even higher tolls in the future.
"We believe that the board's actions today — first with passing the budget and then in affirming the toll increase by a vote of 15 to 1 — makes it very clear to the financial community that the board recognizes the importance of financing the capital plan with a $1 toll increase on July 1," John Hanson, DRPA's chief financial officer, said in a phone interview.
DRPA staff and its outside financial advisers have warned DRPA commissioners that delaying the July 1 toll hike, which would have been the second time the agency put off the toll increase, could prompt a downgrade from one or more of the rating agencies.
The authority has $1.3 billion of outstanding debt. Standard & Poor's rates the DRPA A-minus with a stable outlook. Moody's Investors Service rates it A3 with a negative outlook.
If both Moody's and Standard & Poor's downgrade the authority by one notch, that would force the DRPA to pay about $220 million in swap termination or collateralization payments on two derivatives with UBS Securities LLC as counterparty. That payment would deplete the agency's operating budget and in turn necessitate toll increases that commissioner Jeffrey Nash, vice chairman of the board and a Camden County freeholder, said could reach $8.
"I've been told that if we today defer this toll increase, we are running a significant risk of having our tolls be $8 and that is one of my great, great concerns," Nash said during Wednesday's board meeting.
Hanson said his staff is working on reducing one of the UBS swaps by $20 million to help reduce the authority's derivative portfolio.
A one-notch downgrade by either rating agency would require the DRPA to pay higher costs on its letters of credit. In addition, not having an approved budget by Dec. 31 would allow the banks that supply DRPA with letters of credit on $700 million of variable-rate bonds to turn that debt into bank bonds. That would force the authority to pay interest rates of 11% or refinance the floating-rate debt into fixed-rate mode.
The bistate authority manages four tolled bridges that connect Pennsylvania and New Jersey. It also oversees the PATCO commuter line.