The Port Authority of New York and New Jersey last week expanded its credit support to bonds expected to be sold for the development of a tower at the World Trade Center site due to rating concerns.
The authority modified its credit support agreement to incorporate contingencies in case of bankruptcy by the subsidiary of developer Silverstein Properties Inc. that is responsible for making debt-service payments on $1.37 billion of tax-exempt Liberty bonds, which are to be used to partially finance Tower 4.
The Port Authority owns the World Trade Center site and leases a portion of it to Silverstein.
The authority board in August agreed to act as a guarantor on the portion of debt service not covered by rents payable by New York City, which agreed to lease some of the office tower’s space.
“The rating agencies have raised certain theoretical issues with the proposed credit support structure for the [Tower 4] Liberty bonds, which are an impediment to the issuance of a AA-minus, or, for that matter, possibly any rating with respect to the [Tower 4] Liberty Bonds,” an authority resolution said.
Those issues include the risk that in the event of a bankruptcy, third-party creditors could seek to claim the city’s rent payments or the capitalized interest reserve fund.
The authority board agreed to wrap those “relatively remote risks rather than face a 'guaranteed’ higher cost over the life of the [Tower 4] Liberty bonds due to higher interest rates resulting from a lower rating.”
The Liberty Development Corp. issued $2.59 billion of Liberty bonds on behalf of Silverstein. Those bonds were put into escrow and have been re-escrowed twice.
Silverstein expects to refund the $1.37 billion of bonds for Tower 4 in December, now that the Port Authority guarantee has been modified.
The remaining bonds will be re-escrowed for future development at the site.