The Port Authority’s big debt sinkhole

January 21, 2014

Bloomberg has a story about The Port Authority of New York and New Jersey bringing a $1 billion taxable bond offering to market without citing the George Washington Bridge closure problem in the risk section. I think whatever involvement New Jersey Governor Chris Christie or his staff had in closing the bridge has no bearing on the ability of the Port Authority to repay these new bonds. Governors come and go, but this momentous pile of debt remains outstanding.

Slate’s Matthew Yglesias piled onto Christie’s Port Authority caper with a piece about dismantling the Port Authority into smaller pieces and pushing it back to the states. Yglesias wrote (emphasis mine):

  • Put the bridges and tunnels under the control of MTA Bridges and Tunnels, which runs the city’s other bridges and tunnels, and in exchange give New Jersey Transit a fixed share of toll revenue from the Hudson River crossings.
  • Put the PATH train under the control of New Jersey Transit, which runs other commuter trains into Manhattan.
  • Let the various airports all go their separate ways. They don’t need to be managed by a single entity.
  • Give AirTrain JFK to the NYC Subway.
  • Sell the random real-estate holdings [think World Trade Center].

There is a certain elegant logic to Ygelsias’ proposal, but it lacks any understanding of the debt and financial structure of the Port Authority.

Fitch rates the Port Authority’s $17.9 billion in outstanding consolidated bonds at ‘AA-‘. In their rating announcement for the new $1 billion taxable deal, which will go to the construction of the World Trade Center site (WTC), Fitch discusses the financials for the Port Authority as a whole. Most Port Authority financial documents that I have seen have few details for the WTC project, but I found this from a report prepared by Navigant in September 2012 (page 63):

There was an estimated cost to the Port Authority of $7.71 billion for the World Trade Center (after insurance reimbursements and federal grants), according to the Navigant report. There was also potential for another $820 million in cost overruns. Meanwhile, the leasing revenues for the WTC office buildings have been abysmal. From Crain’s New York on May 16, 2013:

As of today, about 2.5 million square feet of vacant office space is expected to open in 2014 at 1 WTC and the neighboring tower under construction, 4 WTC. And more than 2 million square feet are on the drawing board at 3 WTC, whose construction is stalled at seven stories for lack of commercial tenants.

No major corporate office lease has been signed at the site since magazine publishing giant Condé Nast signed a deal to lease about 1.2 million square feet at 1 WTC two years ago.

The deal was hailed at the time as a validation of the site’s prospects as an office neighborhood, but the buildings continue to lose out on the handful of major office tenants currently in the market.

There will never be a way to restructure the Port Authority until the issue of the World Trade Center and its massive debt load and low occupancy rate is resolved.

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