Fitch: Port Auth. NY & NJ 130th Series Cons. Bonds 'AA-' and VV Series Cons. Notes 'F1+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--April 25, 2003

Fitch assigns a 'AA-' rating to The Port Authority of New York and New Jersey's (PA, or the Authority) $83.9 million consolidated bonds, 130th series (non-Alternative Minimum Tax (AMT)). The 130th series bond proceeds will be used to refund the Authority's 87th series bonds. The bonds are expected to be sold competitively on April 30. Net revenues of the Authority's facilities are pledged as security, and interest on the 130th series debt is payable on April 15 and October 15, commencing October 15, 2003. Final maturity for the 130th series is 2015.

Fitch also assigns an 'F1+' rating to the Authority's $250 million consolidated notes, Series VV. Proceeds from the notes will be used for debt refunding and to fund various PA capital projects. The short-term 'F1+' rating on the notes is supported by the internal liquidity of the Authority's general reserve fund. The bonds and notes will be issued on parity with approximately $6.3 billion outstanding in consolidated bonds, and $200 million outstanding in consolidated notes. At this time Fitch Ratings affirms the 'AA-' and 'F1+' rating on the PA's outstanding consolidated bonds and notes, respectively. The outlook for both the Authority's bonds and notes is stable.

The rating reflects the diverse revenue-producing assets of the Authority, including three of the nation's busiest airports. Despite the events of Sept. 11, 2001, and the many questions surrounding reconstruction at the World Trade Center (WTC), the Authority's airports, bridges, tunnels, rail facilities and seaports continue to provide consistent revenues to support debt service. Also accounted for in the rating is the ongoing financial support provided by the federal government via grants from the Federal Emergency Management Administration (FEMA). Credit concerns include the economic recession in New York City, the slower than expected recovery in airline passenger demand, and the uncertainty present in the US airline industry. Airline revenues typically account for more than 50% of gross PA revenues.

Despite the economic downturn in New York City and increases in security costs at PA facilities, the Authority produced net revenues of $1.4 billion in 2002, sufficient to cover debt service 2.94x. Excluding net recoverables related to the events of Sept. 11, 2001, the debt service coverage was 1.92x. A crucial component of the Authority's profitability was $475 million in net revenue resulting from a combination of funds from insurance proceeds and from FEMA. PA reserve levels increased $142 million to $1.72 billion in 2002. The Authority's internal liquidity is sufficient to cover annual debt service 3.70x, operating expenses 0.91x and also provides for a 21.3% cash to debt ratio.

In 2002 the Authority's three major airports (John F. Kennedy International Airport, JFK, LaGuardia Airport, LGA, and Newark Liberty International Airport, EWR) handled approximately 80 million passengers, a decrease of 3% from 2001. Air traffic at the three major airports appeared to be recovering in line with national recovery trends through February 2003, but then began to decline in March 2003 following a series of heightened terrorism alerts and the subsequent initiation of war with Iraq. Net operating revenues were lower in 2002 at each of the PA's major airports. The largest decline was at LGA, which had $60 million in operating income, down 38% from 2001. The next largest decline was EWR, which was down 23% to $184 million. JFK experienced the smallest decline in net revenues, down 12% to $250 million. Enplaned passengers at LGA, EWR and JFK respectively were 11.0 million, 14.6 million and 15.0 million. Aviation revenues are somewhat insulated against passenger activity downturns due to the cost-recovery nature of the airline agreements at the airports, and long-term fixed rental agreements for use of terminal buildings and other tenant-leased space.

The PA adopted its $5 billion 2003 budget on February 21, 2003. Gross operating revenues will fund 56% of the 2003 total budget. Other funding sources include notes and bonds for capital spending (29%), PFC revenue (13%), and financial income (2%). The Authority has lowered its 2003 airline passenger forecast from 87 million to 82 million, only marginally higher than 2002 levels. Eastbound automobile traffic for NYC tunnels and bridges (toll direction) is also forecasted to increase only slightly in 2003, to 126.3 million vehicles from 125.3 million in 2002. Total marine cargo tonnage is expected to decline 3% to 20.6 million, compared to 21.2 million tons in 2002. The number of Port Authority Trans-Hudson (PATH) passengers is expected to increase 5% to 54.4 million, although this small increase follows a 26% decline from 2001 to 2002. The 2003 budget forecasts $1.46 billion in cash reserves by Dec. 31, 2003. The authority plans to generate $27 million more in parking revenues at the three airports due to increased passenger activity and higher parking fees. Higher revenues are also expected in aviation due to cost recovery of expenses and various capital projects. Bridge and tunnel tolls are not expected to change in 2003, though increased revenue is forecasted from higher traffic levels.

The Authority remains committed to its capital improvement plan (CIP), and invested a single year record of $1.5 billion on capital projects in 2002. This was up from $1.4 billion of investment spending in 2001. In the $8.7 billion 2003-2007 CIP, aviation accounted for $2.7 billion of projects; port facilities, $1.0 billion; tunnels, bridges, and terminals, $1.1 billion; PATH facilities, $900 million; downtown restoration, $1.8 billion, economic development, $200 million; and regional programs, $1.0 billion. Capital projects in 2002 centered on terminal and parking lot improvements at EWR and on the design and construction of a temporary PATH station at the WTC site. Operation of the JFK Airtrain is expected to begin in the fourth quarter of 2003. Additionally, the Authority has earmarked slightly more than $500 million for further security upgrades.

As with many airports and public infrastructure entities in the post-Sept. 11 environment, insurance costs for the PA will rise, and it is expected that additional property damage and loss of revenue insurance may be economically unfeasible. The PA currently now has $500 million coverage per occurrence that expires in June 2003 (roughly half of which is self-insured), down from $1.5 billion per occurrence, with a $5 million per occurrence deductible. The PA has purchased a separate $25 million terrorism policy. Pursuant to the Terrorism Risk Insurance Act of 2002, the PA obtained $96 million of terrorism coverage in excess of the first $25 million of terrorism coverage. Fitch will continue to evaluate the status of the PA's insurance program.