Air travel may be down, but bonds sold to build a cargo facility at a New York City airport managed to pull up in time, according to Standard & Poor's.

The rating agency last week removed from negative watch bonds sold by the New York City Industrial Development Agency in 2001 now that one of its tenants has resumed paying rent.

The IDA sold $152.7 million of tax-exempt and $7.6 million of taxable bonds on behalf of Aero JFK LLC, formerly Airis JFK, to finance the construction of a 434,615-square-foot cargo facility at John F. Kennedy International Airport. About $138 million of bonds are outstanding. In April, Standard & Poor's put the BBB-minus-rated bonds on negative watch because one of four current tenants, Alliance Airlines, stopped paying rent in October 2008.

"We believe the rating reflects forecast demand for cargo handling facilities, market risks in tenant turnover, and re-letting," Standard & Poor's said in a ratings report last week. "In our opinion, additional liquidity from the structure and the Port Authority of New York and New Jersey's strong oversight as landlord mitigate these risks."

The airport is one of five in the metropolitan area owned and operated by the Port Authority.

Alliance Airlines negotiated a settlement with Aero JFK and resumed paying rent, though at a reduced rate, retroactive to March. Alliance consolidated its operations at the facility and reduced the amount of space it was renting while another tenant, Delta Air Lines Inc., leased additional space, according to the rating report.

Aero JFK is a partnership owned by Aeroterm Inc. and CalEast Air Cargo LLC.

"This was a multi-tenant lease restructuring at JFK," said Steve Forrer, executive vice president at Aeroterm. "The positive outcome is proof that success is possible even in these trying times. Through the cooperation of a number of tenants that Aeroterm has a relationship with, we could accommodate the tenants' needs and improve the financial performance of the asset for bondholders."

A person answering the phone at Alliance Airlines said no one was available to speak to a reporter.

The other tenants are Lutfhansa Cargo AG and Lufthansa Technik. Lease payments generated 1.28 debt service coverage in fiscal 2007 and 2008. Standard & Poor's said its report that coverage in fiscal 2009 is likely to be about 1.0 times but will return to 1.2 times in the medium term.

Moody's Investors Service downgraded the bonds to Ba2 from Baa3 in April and put them on watch list for possible further downgrade. Moody's has not taken any action since Alliance resumed paying rent.

More than half of the 1.1 million tons of freight coming into Port Authority airports in the first seven months of the year went through JFK, according to authority statistics. Year-to-date freight handled at JFK, as of July 31, fell to 620,602 tons, a 31.7% drop compared to the same period last year. The number of flights at the Port Authority's airports also fell, though by a smaller percentage, 8.8%.

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