Fitch Affs $934MM Port Auth New York & New Jersey JFK Intl Air Term L.L.C. at 'BB+' RWN.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 2, 2004

Fitch Ratings affirms the 'BB+' rating on $934 million Port Authority of New York and New Jersey (PA), JFK International Air Terminal L.L.C. Project (JFK IAT), special project bonds, series 6. The series 6 bonds are placed on Rating Watch Negative pending the resolution of several short-term credit relevant issues.

These credit issues include a successful negotiation with the Port Authority regarding the subordinate loan and the timely conclusion of the Port Authority and the City of New York lease extension ULURP process. The bonds are primarily secured by facility rental payments by the lessee (JFK IAT). MBIA, a bond insurer whose insurer financial strength is rated 'AAA' by Fitch, provided credit enhancement.

Fitch's Rating Watch Negative reflects the lower than expected cash flow results and debt service coverage (1.01x) during FY2003. Furthermore, enplanement declines continued due to airline bankruptcies, the Iraqi conflict, and SARs. However, during this same period JFK IAT management initiated $2.3 million of cost savings and signed six new carriers to multiple-year leases. Current estimates show 2004 enplanement and revenue activity as stable and growing. Also, competitive pressures from other terminals are lessoning. Lastly, although the PA subordinate loan is truly junior to the series 6 bonds, with no cross defaults, financial margins are extremely thin so Fitch believes this loan must be restructured in the short-term or this project will become unsustainable.

The 'BB+' rating reflects lower than expected enplanement figures pre- and post-Sept. 11, 2001, excess terminal capacity at the airport, and aggressive pricing strategies from other terminal operators. Furthermore, JFK IAT's weakening financial margins are exacerbated by the large debt load, including $934 million series 6 bonds and the $163 million PA subordinate loan for completion funding. Positive credit factors include JFK International Airport's position as the top international passenger gateway in the U.S. and, JFK IAT's importance since it serves approximately 29% of the airport's total international traffic.

JFK IAT is a consortium of three companies formed specifically for this project. Included in the consortium is Schiphol USA Inc., a subsidiary of Schiphol International B.V., whose parent, Schiphol Group N.V. operates Amsterdam Schiphol Airport in the Netherlands. Schiphol's level of expertise and worldwide reputation for managing international airports and developing retail is critical to the success of this terminal. Furthermore, Schiphol has remained committed to this project even though financial incentives have diminished considerably. Currently, there are 46 airline tenants utilizing IAT, representing a very high level of diversification for an individual terminal.

JFK IAT management is aware of the difficulties it faces with regard to narrowing financial margins. These difficulties are exacerbated by the short tenure of the lease with Port Authority and the resulting high annual debt service costs, after including the special mandatory redemption payments (SMR). On Oct. 15, 2003, the Port Authority reached an agreement with New York City (NYC) extending the lease that governs control of the two NYC airports, JFK and LaGuardia.

This agreement ends years of negotiations and when finalized will extend the JFK IAT series 6 bonds through 2025 and negate the need for SMR payments. Between restructuring the PA subordinate loan, amortizing the series 6 bonds through 2025, a stabilizing of the airline industry, and management's aggressive marketing efforts, Fitch views the likelihood that debt service coverage will remain adequate, for this rating level, as strong. Therefore, after the near-term credit issues are resolved, Fitch views the long-term financial viability of this project as adequate.

For additional detail regarding the Port Authority of New York and New Jersey's lease settlement with the City of New York, see Fitch Research dated Oct. 16, 2003.