The Port Authority of New York and New Jersey plans to competitively market $300 million of tax-exempt bonds on Thursday.
The agency is offering the debt as term bonds with maturities from 19 to 30 years, according to the preliminary official statement. It plans to sell the debt as its 166th series of consolidated bonds.
The bi-state authority operates four airports in the New York City metropolitan region, commuter rail, bridges, tunnels, maritime ports, and a bus terminal in Manhattan. It also owns the World Trade Center site.
The authority typically sells its bonds competitively, though it does sell the occasional deal through negotiation.
Its last competitive tax-exempt deal was in July 2010, when it priced $400 million of consolidated bonds. A syndicate led by Citi won that deal.
The authority issued the debt as term bonds with maturities from seven to 30 years.
On the short end, bonds maturing in 2017 priced to yield 2.07% on a 2.5% coupon, 10 basis points higher than Municipal Market Data’s triple-A benchmark. Bonds maturing in 2040 priced to yield 4.35% on a 4.25% coupon, 38 basis points higher than MMD.
The 30-year bonds have traded heavily in the secondary market and edged up to 5% yields in November. Last week a customer sold $10,000 of the bonds to yield 5.92%, according to trade data on the Municipal Securities Rulemaking Board’s EMMA site.
Rates have climbed in recent months. MMD’s triple-A benchmark 30-year yields were at 4.95% on Thursday last week compared to 3.97% six months ago and 4.05% a year ago.
“Everything is going up,” said Alan Schankel, managing director at Janney Capital Markets. “The long muni yields just crossed over 5% a few weeks ago and so I think that’s more a function of the market than the Port Authority.”
Schankel said that credit spreads between double-As — of which the Port Authority is one — and triple-As have widened over the past six to nine months.
The credit is well received by Janney’s retail financial advisers, according to Schankel.
“It’s a very well-managed operation,” he said. “They’re diversified, they have a lot of different revenue streams.”
The fact that the Port Authority’s facilities are heavily used by metropolitan area residents in the two high-tax states also makes a difference, especially with retail investors, because people are familiar with the agency.
“It’s a palpable credit because anybody who goes close to New York pays them some money — gives them a toll or puts some money in the [Port Authority Trans-Hudson train],” he said. “People who are familiar with something tend to gain a little comfort level — if you go into a store and it’s well managed and everything runs right, even before you see their financials you feel good about it. The Port Authority’s the same way.”
Schankel also noted favorably that the authority had cut its 2007-2016 capital plan by $5 billion to $24.5 billion in 2009. “That’s the kind of good management that bondholders admire,” he said.
The authority’s 2010 budget had included $504 million of capital spending for the $8.7 billion Access to the Region’s Core project, which would have expanded rail capacity under the Hudson River.
New Jersey Gov. Chris Christie killed the mass transit project, the nation’s largest, in October.
Around $200 million of capital spending on the ARC project and the World Trade Center site that had already occurred were reclassified as operating expenses, according to the POS.
“When costs associated with projects or project alternatives that are not being implemented are identified, those costs are reclassified from capital work-in-progress to operations as a matter of generally accepted accounting principles,” Port Authority spokesman Ron Marsico said in an e-mail.
The Republican Christie earlier this month proposed using $1.8 billion of Port Authority capital funds for New Jersey road projects.
The agency has an existing program that allows governors of New York and New Jersey to each spend up to $250 million of authority funds on regional transportation projects.
Last week, U.S. Sen. Charles Schumer, D-N.Y., blasted Christie’s proposal. New York Gov. Andrew Cuomo has not publicly stated whether he favored Christie’s plan and his press office did not respond to repeated queries.
Last month, the authority passed a $7.17 billion operating and capital budget for 2011 that kept operating growth flat while boosting capital spending.
Budgeted capital spending under the plan will increase to $3.89 billion, a $760 million increase over 2010.
Debt issuance, including bonds, notes, and other forms of borrowing, is planned to increase to $2.63 billion this year from $1.86 billion last year.
Before the economic downturn, the authority expected to bond 40% of its capital spending, but has since revised that to 50%, according to the POS.
The Port Authority has $13.64 billion of bonds outstanding.
It has sold $14.36 billion of consolidated bonds since 2001, including $1.37 billion last year, according to Thomson Reuters.
Fitch Ratings and Standard & Poor’s rate the authority’s outstanding consolidated bonds AA-minus with a stable outlook.
Fitch analyst Vanessa Roy said that the authority has seen increased business in recent months.
“In general, across their business segment — port commerce and aviation and vehicle crossing — they did have some uptick toward the end of 2010,” Roy said. “They budget very conservatively so they’re budgeting almost flat to modest growth in 2011. We’re pretty comfortable with their budget estimate in terms of where they think traffic will be.”
The authority’s revenues come primarily from its airports and vehicles crossings, which subsidize its mass transit operations. The World Trade Center site, after years of delays, is now an active construction site with towers rising.
“Their efforts at the World Trade Center have definitely kicked up,” Roy said. “We’re generally comfortable with the progress that they’ve made with their rebuilding efforts.”
Moody’s Investors Service rates the Port Authority’s outstanding consolidated bonds Aa2 with a stable outlook.
