Fitch Rates Port Authority of New York & New Jersey $400MM 140th Series Consol Bonds 'AA-'

Business Wire, June 3, 2005

NEW YORK -- Fitch Ratings assigns an 'AA-' rating to the Port Authority of New York and New Jersey's (the authority) $400 million of consolidated bonds, 140th series. The bonds, which are expected to sell competitively on June 8, 2005, will have a final maturity on June 1, 2035. Interest on the bonds is payable June 1 and Dec. 1, beginning on Dec. 1, 2005. Fitch also affirms the 'AA-' on outstanding consolidated bonds ($7.7 billion) and notes ($400 million). The Rating Outlook on the authority's consolidated bonds and notes is Stable.

The 'AA-' rating on the consolidated bonds reflects the authority's expansive, well-managed, and diverse portfolio of transportation and commerce-related assets. These assets include the three metropolitan New York/New Jersey airports, an interstate transportation network (tunnels, bridges, terminals, and PATH), and area seaports. The Stable Rating Outlook is supported by the authority's strong financial performance and liquidity.

During fiscal 2004, the authority recorded a 31% operating margin, consistent with prior years, with net revenues of $883 million generated on $2.9 billion of gross operating revenues. Though authority financials indicate a decline in net revenues available for debt service between fiscal years 2003 and 2004 from $1.6 billion to $996 million, Fitch notes that the authority did not receive any insurance proceeds related to the events of Sept. 11 during fiscal 2004. Adjusting prior year results to exclude such recoverables, net revenue available for debt service increased by approximately 7% during fiscal 2004, from $935 million recorded during fiscal 2003. Consequently, coverage of authority debt service improved to 1.8 times (x) during fiscal 2004 from 1.6x during fiscal 2003. Authority general reserve fund balances, which are pledged to the repayment of consolidated bonds and notes, increased slightly, to just under $1.6 billion, representing 16% of outstanding debt.

On Nov. 24, 2004, the authority renewed its lease with the city concerning operating control of the two New York City airports and with respect to payment in lieu of taxes (PILOT) for the World Trade Center (WTC) complex. The new airport lease, which runs through 2050, replaces the prior lease which was due to expire in 2015. Upon its execution, the authority paid the City of New York (the city) $780 million, which encompassed a required $500 million lump sum payment and increased annual rental obligations (from $3.5 million to $93.5 million) accrued through Nov. 24, 2004. The payment was financed with prior bond proceeds and internal cash, with the remaining minimum annual rental for 2004 paid as a monthly installment. As part of the renewed lease agreement, the annual minimum rent paid by the authority to the city as PILOT at the WTC complex increased to $14 million from $1.7 million. When developed, the future minimum PILOT for the WTC complex could increase to $55 million if the authority achieves specified occupancy and net rental revenue targets.

Going forward, annual airport lease rentals, payable in monthly installments, will equal the greater of the minimum annual rental ($93.5 million, as adjusted from time to time) or 8% of the authority's gross revenues from John F. Kennedy International Airport (JFK) and La Guardia Airport (LGA). Beginning in 2007 and every five years thereafter, the minimum annual rental will be reset to equal 10% of average gross revenues at JFK and LGA over the prior five-year period, so long as such adjustment does not result in a lower minimum annual rental than was payable for the prior five-year period. Pursuant to the 2002 lease agreement signed between the authority and the city of Newark (Newark) for Newark Liberty International Airport and Port Newark, Newark reserves the right to amend provisions of its lease to conform to the amended lease governing the relationship between the city and JFK and LGA. To date, the authority has not recorded a liability for any additional rental payments, as an amended lease with Newark has not yet been finalized.

On Dec. 1, 2004, the authority and the airlines representing a majority of the traffic at JFK and LGA entered in new flight fee agreements, effective as of Jan. 1, 2004, for a 20-year term expiring on Dec. 31, 2023. Under the Freedom Agreements, which is similar to the previous Dewey Lease, airlines at JFK and LGA will continue to pay the authority as compensation for ongoing design, construction, operation, and maintenance of certain public aircraft facilities (PAF), a flight fee, calculated generally on the basis of direct and allocated costs of operating and maintaining such PAF, and the weight of aircraft using the airport. While the underlying methodology for recovering PAF costs under the Dewey Lease and Freedom Agreements are fairly similar, total flight fees were $6 million lower during fiscal 2004 as a result of several minor modifications which affected the calculation of airline related costs.

Despite the dramatic increase in annual operating rent for the New York City airports and the uncertainties lingering as the authority continues to recover from the events of Sept. 11 and participates in the redevelopment of the WTC complex, Fitch believes that the sizable revenue-generating capacity of the authority's vast asset base will yield continued stability in financial margins and debt service coverage. Moreover, as the Liberty Lease retains the cost-recovery elements of the prior lease agreement, the authority can raise airline rates and charges to reflect the new rent structure. Fitch will continue to monitor the potential financial impact of any future jury decision that could limit the collection of expected insurance proceeds by WTC net lessees developing the new complex.