Fitch: Port Authority of NY/NJ Settles Airport Lease Negotiations With NYC.

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 16, 2003

The Port Authority of New York and New Jersey (the Authority) reached an agreement with New York City (NYC) on Oct. 15, extending the lease that governs control of the two NYC airports, John F. Kennedy International Airport (JFK) and LaGuardia Airport (LGA). The agreement ends 10 years of negotiations, during which NYC officials had sued the Authority for $1.3 billion in back rent based on NYC's calculation of the true value of the airports. In exchange for the right to control NYC's two airports until 2050 (35-year lease extension), the Authority will make a combination of one-time payments and increased rent payments.

Despite dramatically higher lease payments, the Authority's history of stable operations and substantial liquidity should enable it meet its new financial obligations. Although Fitch is still evaluating the new agreement and its ramifications on the credit, at this time the Authority's bond rating remains stable. Fitch rates the Authority's outstanding $7.5 billion in consolidated bonds 'AA-' and $700 million in consolidated notes 'F1+'.

The new agreement is similar to the renewed lease agreement made in August 2003 between the Authority and the City of Newark for control of Newark Liberty International Airport (Newark). The new lease, which must first be approved by the Authority's Board of Commissioners and then by several NYC planning agencies before being finalized, states that the Authority will make a $500 million payment to NYC at the lease closing. Additionally, annual rent for the two airports increased to $93.5 million from $3.5 million. The new rent is retroactive to fiscal year 2002; therefore, a $180 million rent payment will be reflected in the Authority's 2003 fiscal results.

The Authority also agrees to fund various capital projects, including $50 million in off-airport projects in the borough of Queens (in which the two airports are located) as well as $90 million to study the creation of one-seat rail travel between downtown Manhattan and JFK and Newark airports. The Authority and NYC will each pay $250,000 annually to support an airport oversight board that will coordinate capital planning and operations between JFK and LGA. The board's role will be advisory in nature and will lack veto power over capital projects.

The agreement also increases the annual minimum paid to NYC as a Payment in Lieu Of Taxes (PILOT) at the World Trade Center site to $14 million from $1.7 million. When developed, the future minimum PILOT for the World Trade Center (calculated as $9 per square foot plus a factor representing growth in tax rates and property values over a 2002 base year) is expected to be $55 million and is based on current and future net lease revenues received by the authority. Finally, under the agreement all pending litigation between NYC and the Authority related to the NY airports and World Trade Center is dismissed with prejudice.

Currently, the Authority is finalizing plans to meet its new lease obligations, but prudent management expects to support the increased rental costs through a combination of bond and cash financing. Payment for the $180 in retroactive rent will come from cash reserves, as will a portion of the $500 million lump sum payment due to NYC at closing. Approximately $340 million is to be funded through debt issuance. Evidence of the Authority's ability to meet its new lease obligations include cash reserves of $1.72 billion and fiscal-year (FY) 2002 net revenues of $1.4 billion, which included $475 million in insurance proceeds and grants from the Federal Emergency Management Agency. Coverage on the authority's outstanding bonds was quite strong at 2.94x in FY2002.