Moody’s Investors Service is considering downgrading the Port Authority of New York and New Jersey because of its need to continue borrowing money to finance transportation projects even as toll collections and airport fees grow slowly.
Moody’s attached a negative outlook Wednesday to the Port Authority’s Aa2 rating, implying a possible downgrade of its $13.8 billion of debt in the medium term.
The authority runs five airports, six tunnels and bridges, three bus terminals, five ports, a commuter rail system, and various real estate properties in the New York City metropolitan area.
In January 2008, the agency planned to implement $29.5 billion in projects in its 10-year capital plan. It has since scaled that plan down to $24.5 billion.
The capital plan contemplates a major increase in debt.
The Port Authority plans to spend $3.9 billion on capital projects this year, with as much as $2.5 billion of that funded through debt. The agency now expects to finance half its capital plan through borrowing, up from 40% initially.
Moody’s worries that the sluggish economic recovery could depress revenues, resulting in less money available to pay interest and principal on a bigger pool of debt.
The authority’s debt service coverage — or how many times over it could meet debt payments with revenue after paying operating expenses — slipped to an estimated 2.6 times in 2010, from 3.95 times in 2009.
If net revenues fall to 1.4 times debt-service costs thanks to a higher debt burden without a commensurate increase in revenues, Moody’s expects “downward pressure” on the Aa2 rating.
The Port Authority’s 2011 budget projects it will have about $2 billion in net revenue to pay $700 million in debt service — coverage of nearly 3 times.
“Our credit ratings and our financial health remain strong,” the authority said in a statement. “We will continue to manage our operating budget and capital plan with fiscal discipline as we navigate through these difficult economic times.”
The agency enjoys a “near monopoly” on public transportation in the New York area, Moody’s noted, and revenues have held up well both through the severely stressful time after Sept. 11, 2001, and the latest recession.
Port Authority’s projected $3.67 billion of revenue in 2011 — mainly from airport and bus terminal fees and tolls charged at bridges and tunnels — will have grown at an average rate of 1.4% over the past two years.
The negative outlook on its Aa2 rating applies to the $300 million bond offering the authority expects to sell this week. The bonds mature from 2030 to 2041. The proceeds will be used to finance capital projects.