Fitch Rts Port Auth NY & NJ $300MM 132nd Ser Consolidated Bnds 'AA-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 27, 2003

Fitch Ratings assigns a 'AA-' rating to The Port Authority of New York and New Jersey's (PA, or the Authority) $300 million consolidated bonds, 132nd series (non-alternative minimum tax). The 132nd series bond proceeds will be used to fund portions of PA capital projects and pay costs of issuance. The bonds are expected to be sold competitively on Sept. 4. Net revenues of the Authority's facilities are pledged as security, and interest on the 132nd series debt is payable on Sept. 1 and March 1, commencing Sept. 1, 2003. The bonds mature serially from 2024 through 2038.

The bonds will be issued on parity with approximately $6.79 billion outstanding in consolidated bonds, and $700 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 Rating 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 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 U.S. 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, 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 continues to lag from pre-2001 levels, and somewhat below national recovery averages, as net operating revenues were lower in 2002 than in 2001 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 million, 14.6 million and 15 million. However, 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 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 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 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 2003. Additionally, the Authority has earmarked slightly more than $500 million for further security upgrades.

Sources of financing for the full $8.7 billion CIP have not been authorized to date. Though debt levels at the PA have increased in recent years and debt levels are expected to increase in years to come, Fitch considers the PA's 'AA-' rating should remain stable if the PA continues to maintain its total reserve fund balances equal to its next two years bonded debt service in accordance with its long-standing policy and meet its statutory requirement to maintain the general reserve fund equal to 10% of outstanding debt. Fitch also considers a solid cushion above its 1.25x rate covenant important for a 'AA' level rating. The PA's debt service coverage has not dipped below 1.80x over the past decade.