Delaware River Agency May Delay Toll Hike and Face Downgrade

Financial analysts Wednesday warned the Delaware River Port Authority that delaying a planned July 1 toll increase could result in rating downgrades of the bi-state agency, which could then prompt a payment of about $220 million on two of the agency’s swaps.

DRPA board commissioners are also seeking to put off a 10% fare increase set for Jan. 1 on the light-rail Port Authority Transit Corp., or PATCO, line that connects Camden, N.J., to Philadelphia.

Authority officials will work on revising a proposed 2011 operating budget and a $1 billion five-year capital plan that would not include the additional revenues. The board’s next meeting is Dec. 8.

Commissioner Jeffrey Nash, vice chairman of the board and a Camden County Freeholder, called for the DRPA to postpone certain projects in the capital plan so it could put off the July 1 toll hike. The increase would boost tolls on DRPA’s four bridges to $5 from $4.

The authority’s outside financial advisers, Acacia Financial Group Inc. and Public Financial Management Inc., told the board during Wednesday’s finance committee meeting that postponing the toll increase or fare hike could negatively affect the agency’s credit rating.

“It’s our view that such a deferral could lead to a downgrade by one or more of the rating agencies,” Peter Nissen, managing director at Acacia Financial, told the board.

Moody’s Investors Service 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.

A rating downgrade of just one notch by both Moody’s and Standard & Poor’s could force the authority to make a payment to UBS Securities LLC, counterparty on two swaps.

If both rating agencies downgrade the authority below single-A, UBS has the right to force the DRPA to post collateral or terminate the derivatives. That would cost the authority about $220 million, Nissen said. That amount changes day to day depending on interest rates.

Chief financial officer John Hanson, said the authority will now focus on altering the operating budget and the capital plan with an eye on its credit rating.

“What we were asked by the board to do is try and find a way that would satisfy the concerns of the rating agencies and still allow us to delay the toll increase,” Hanson said in a phone interview. “So to the extent that we are actually able to do that, then there would be very little risk [of a payment to UBS]. I don’t know what the chances of us being able to do that are, though — that’s something we have to work on.”

The authority previously postponed a PATCO fare increase and toll hike in December 2009, pushing them off to 2011. Following that decision, Moody’s on March 25 revised the DRPA’s credit outlook to negative from stable, stating that the authority will be challenged in the near to medium term to maintain debt-coverage and liquidity levels due to its capital needs and its increase in variable-rate debt.

“The negative outlook also takes into consideration these expenditure pressures coupled with the delay in implementing toll rate increases,” according to the Moody’s March report.

“Future rating considerations will factor the authority’s ability to afford its significant capital needs while maintaining sufficient cash reserves to offset potential liquidity demands.”

The board also suggested directing $30 million of unreserved economic development funds to the capital budget in order to help offset a potential delay of toll and fare increases.

Hanson and Acacia Financial stressed that such a move is a one-shot and is not a bondable revenue stream.

The DRPA manages the Benjamin Franklin, Walt Whitman, Commodore Barry and Betsy Ross bridges between New Jersey and Pennsylvania as well as the PATCO line.

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Transportation industry Pennsylvania New Jersey
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