N.Y.-N.J. Port Authority Readies $2B of Taxable Debt for WTC
The Port Authority of New York and New Jersey will bring $2 billion of 50-year taxable bonds to market this week.
Proceeds from the authority’s 174th series of consolidated bonds will go toward its multi-billion dollar redevelopment of the World Trade Center site in lower Manhattan after its destruction by terrorists. A portion of the proceeds will also refund outstanding bonds.
The authority expects to lock in the price on Friday, according to spokesman Steve Coleman.
RBC Capital Markets will lead the syndicate of ten underwriters.
As of Friday afternoon , ratings had not yet been assigned to the new bonds, but agencies assign ratings in the double-A category on outstanding consolidated bond issues, citing the authority’s monopoly over the region’s infrastructure.
“It’s a credit that’s been performing well and inflows into the municipal market have been strong, so my expectation is that demand would be high,” said Eric Friedland, director of municipal research at Schroder Investment Management in New York City.
According to Lipper FMI, municipal bond mutual fund inflows have been positive for 23 consecutive weeks.
Because it’s taxable, this week’s deal will likely attract a broader base of investors, including cross-over investors, Friedland said. But, he added, it will depend on what the muni-to-Treasury ratio is at the time of the sale.
The Port Authority last sold taxable bonds to fund WTC redevelopment in September 2011 at an interest rate of 4.926%. The $1 billion, 40-year bonds were rated Aa2 by Moody’s Investors Service, and AA-minus by both Standard & Poor’s and Fitch Ratings.
The debt traded on Sept. 19 at a yield of 4.28%, Thomson Reuters data show.
“I would expect rates to be more attractive this time around more because of market technical factors, less because of the credit itself,” Friedland said. “But I do believe it’s a strong credit,” he added, noting the authority’s multiple revenue sources and its importance to the New York metropolitan region.
The bonds, which will be subject to early redemption, are secured by the port’s revenues, in addition to cash reserves from its general reserve fund and consolidated bond reserve fund.
Revenues include tolls and fares, rentals, flight fees, parking, and other fees the agency collects. According to its preliminary 2012 budget, gross operating revenues for the year are estimated to be $4.1 billion, which is up 11.2% from last year. The increase is primarily due to an expected $383 million collected from higher tolls and fares.
While Moody’s has given the authority’s outstanding bonds its third highest rating of Aa2, it has also assigned a negative outlook to that rating. Moody’s cites a slow, economic recovery in the service area, a capital budget that is 50% dedicated to non-revenue additive projects, risks associated with the WTC site, and greater debt-financing of the port’s capital plan, which will result in a higher debt burden.
At one notch lower, the AA-minus ratings from S&P and Fitch have been given stable outlooks.
Proceeds from the bond sale will be used for “all components of the WTC site,” according to Coleman.
Current WTC projects include construction of One World Trade Center and the transportation hub, development of retail space, and construction of a facility for buses, trucks and cars entering the site.
The preliminary budget provides for $2 billion in expenditures on WTC redevelopment for 2012, which totals 51% of the authority’s capital expenditures for the year.
In total, the cost for the complete project is estimated to be $14.8 billion.
The authority’s involvement in the WTC redevelopment has been criticized by many, in addition to being cited by ratings agencies as an ongoing credit risk.
At a panel discussion hosted by the Citizens Budget Commission on Wednesday, Stephen Berger, the Port Authority’s executive director from 1985 to 1990, said the agency should not have taken on the WTC project and that it should have taken up a swap offer with the city, proposed back in 2002.
The offer entailed swapping the city-owned land under JFK International Airport and LaGuardia Airport in exchange for the WTC site and was proposed by former New York deputy mayor Daniel Doctoroff.
Instead, then-Gov. George Pataki brokered a deal in which the city extended its lease of the airports until 2050 in return for a $700 million upfront payment and an increase in annual rents.
Another former executive director, Robert Boyle, took a different view of the authority’s WTC involvement.
“In my humble opinion, there isn’t an agency in the world that could have accomplished what the Port Authority has accomplished at the World Trade Center,” he said.
Boyle, who was the agency’s executive director from 1997 to 2001, said the WTC project is a good investment.
“It’s going to take some time before that investment pays. But it will pay, and it will pay very well,” he said, calling it a “cash cow” once it starts to produce.
For now, the project is tying up much of the authority’s capital, causing delays on other planned projects, including work on Newark International Airport and LaGuardia Airport, replacing the Goethals Bridge, and replacing suspender cables on the George Washington Bridge, among many others.
In addition to rising WTC redevelopment costs, the authority also attributes the delay in projects to the economic recession, post-9/11 security costs, and a maintenance-driven overhaul of facilities, according to its preliminary budget documents.
Audits by consulting and financial advisory firms Navigant Consulting Inc. and Rothschild Inc., reported in January that WTC costs had spiked from an estimated $11 billion in 2008 to roughly $14.8 billion, and that the authority had underestimated about $1 billion of WTC-related costs.
The second phase of that report, made public last week, said the Port Authority has made great improvements regarding transparency and efforts to complete the WTC program within estimated costs, and confirmed the estimate of $14.8 billion.
The reviews of the agency’s operations and financial structure were commissioned by New Jersey and New York governors Chris Christie and Andrew Cuomo in exchange for their approval of last year’s controversial toll increases.
According to the governors, who released a joint statement, the conclusions of the two reviews show that the authority is “finally on the right track.”
The audits found that the increases were necessary to meet funding requirements, and, combined with the pursuit of non-toll revenue, will be necessary in order to maintain the authority’s ongoing transportation infrastructure in a “state of good repair.”
The authority has said it is looking into potential means of increasing revenue, such as advertising at the Triborough Bridge and Tunnel and Port Authority Trans-Hudson facilities, toll violation recovery efforts, and divesting non-core assets.
On Thursday, the authority’s board of commissioners approved a study on extending the WTC-Newark PATH rail line to Newark Liberty International Airport.
If the project is pursued, potential benefits to the region would include more than $600 million in design and construction activity over the project’s life, while adding permanent jobs for the link’s operation, officials said.
“Taking a hard look at extending the PATH line in a fiscally responsible manner makes sense, and has the potential to provide New York and New Jersey residents with another hassle-free way to get to and from Newark Liberty International Airport and spur further regional economic growth,” said Port Authority executive director Patrick Foye.
The agency also announced that it will be conducting another study into assuming operations of the Atlantic City International Airport.
Foye said the authority handled roughly 106 million passengers last year, and the figure is expected to increase significantly. “One of the Port Authority’s critical missions is to move air travelers and air cargo as efficiently as possible and studying a possible role involving the operations of Atlantic City International Airport fits that goal,” he said.