Shift to fixed rate lifts Delaware River Port Authority outlook

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A planned elimination of variable-rate debt exposure and termination of outstanding swaps lifted the rating outlook of the Delaware River Port Authority ahead of a $721 million deal.

Moody’s Investors Service revised the outlook for its A2 rating of the port authority to positive from stable Friday citing the debt burden that the transportation agency is expected to have lifted once it completes its new borrowing. The Camden, New Jersey-based regional transportation authority is slated to offer $297.5 million of Series A revenue bonds, $378.8 million of Series B revenue refunding bonds and $54.6 million of Series C federally taxable bonds.

“Following the completion of the transaction and refunding of the existing variable-rate debt, we expect that all of DRPA's debt will be fixed rate debt compared to around 67% of total debt previously,” Moody’s analyst Kathrin Heitmann wrote in her report.

The DRPA operates four spans that cross the Delaware River between New Jersey and Pennsylvania: the Ben Franklin, Walt Whitman, Commodore Barry and Betsy Ross bridges. The authority also operates the PATCO rail transit system from Camden County, New Jersey, to Philadelphia. The authority generated operating revenues of $366 million in the 2017 fiscal year.

Heitmann noted that the affirmation of the DRPA’s A2 rating reflects a “stable to slightly growing” traffic volume forecast that is experiencing slowing growth trends after positive momentum experienced since 2014.

She cited the authority’s use of toll revenue to fund PATCO as well as the potential of New Jersey and Pennsylvania board members to focus on competing priorities as other factors in the rating. The bi-state agency is not slated to implement any new toll increases in the near-term.

The proposed debt issuance will result in “modest debt service savings”, but the DRPA’s total debt will remain unchanged, according to Heitmann. The DRPA will have around $1.3 billion of pro-forma total outstanding debt following completion of the new bond transaction after scheduled principal payments on Jan. 1, 2019, Heitmann said.

The DRPA is planned a $787 million five-year capital plan starting in 2019 which Moody’s considers “manageable” that will be financed primarily with operating cash flow and existing liquidity reserves. This strategy is expected to result in a gradual depletion of cash on hand from a high of 1,418 days in 2017 to 730 days by 2022.

Moody’s also affirmed the DRPA’s Baa2 rating on outstanding Port District Project bonds.

Heitmann said that Baa2 rating reflects the lack of a lien on a specific revenue stream and lack of a rate covenant for the bonds, which are general corporate obligations of the authority that are payable from all legally available revenues after payments on its revenue bonds. They are backed largely by a cash-funded debt service reserve equal to the lesser of maximum annual debt service.

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Ratings Transportation industry Variable-rate bonds Toll revenue bonds Delaware River Port Authority Pennsylvania New Jersey