Fitch Ratings has assigned a 'AA-' rating to the Port Authority of New York and New Jersey's (PANYNJ) approx. $1.0 billion new money and refunding 200th through 204th series consolidated bonds. Fitch has also affirmed the rating on $20.66 billion of parity consolidated bonds at 'AA-', $2.15 billion in support payment obligations associated with 4 World Trade Center and Goethals Bridge at 'A', and PANYNJ's $750 million authorized commercial paper program at 'F1+'. The Rating Outlook on the long-term obligations is Stable. RATING RATIONALE The ratings reflect Port Authority of New York and New Jersey's (PANYNJ) mature, diverse and monopolistic transportation infrastructure asset base that provides critical service to the strong New York City metro area, supported further by a conservative debt structure. Its extensive capital plan, recently updated to $32.2 billion through 2026, and certain loss-making assets constrain the rating. Moderate leverage averaging around 8.3x (senior) and 9.2x (total) is mitigated by robust debt service coverage ratios (DSCR) that average around 2.0x (senior) and 1.8x (total) in the rating case , and are consistent with a 'AA' category rating according to criteria. KEY RATING DRIVERS Resilient Revenue Base: Revenue Risk - Volume: Stronger: PANYNJ's portfolio of monopolistic, expansive and diverse transportation and real estate assets includes the four metro New York airports, interstate road, rail and ferry Hudson River crossings, and seaports. The region's diverse and populous economy as well as its status as a global center for commerce supports resilient demand and pricing power. Economic pricing flexibility may fall if WTC or Port Authority Trans-Hudson (PATH) transit assets underperform or if PANYNJ takes on additional loss-making assets. Demonstrated Rate-Setting Flexibility: Revenue Risk - Price: Stronger: PANYNJ benefits from strong airport cost recovery in airline use agreements and proactive toll increases on its bridges and tunnels with minimal impact on traffic levels. Extensive, Growing Capital Plan: Infrastructure Development/ Renewal Risk: Midrange: PANYNJ's recently adopted 2017 - 2026 capital plan totals approximately $32.2 billion, up $4.6 billion from prior $27.6 billion capital program through 2023, and reflects additional commitments relating to a replacement bus terminal in Manhattan, multiple airport terminal redevelopment facilities, the Gateway Tunnel Project. The PANYNJ's capped committed amount for the Gateway Tunnel Project is $2.7 billion. Cost and delay risk are meaningful for an overall capital plan of this scale and complexity. PANYNJ's target capital investment funding includes $11.3 billion in future consolidated bonds, maintaining its targeted underlying funding mix of debt, pay-go capital and other revenue sources and grants. Conservative Debt Structure: Debt Structure: Stronger (Senior)/ Midrange (Subordinate): The authority maintains a nearly 100% fixed-rate, fully amortizing capital structure. The subordinated nature of CP and PANYNJ's Goethals Bridge and 4 World Trade Center payment obligations behind the consolidated bonds results in a midrange score for these obligations. Financial Metrics: DSCR is robust, expected to remain above 1.80x for consolidated bonds and 1.70x for subordinated special obligations in the Fitch rating case through 2021, which primarily reflects slower ramp-up of rental activity at the World Trade Center. Leverage is moderate, with net debt-to-cash available for debt service (CFADS) in the Fitch rating case remaining around 8x to 9x at the senior level and 9x to 10x on total obligations. Peers: Closest peers are Port of Seattle ('AA/AA-'/Stable Outlook) and Massachusetts Port Authority ('AA'/Stable Outlook), both of whose debt is secured primarily on airport and port revenue streams. PANYNJ's diverse and high profile asset base is a significant strength; however, its significantly more involved capital plan coupled with a highly politicized operating environment place its ratings one notch below senior lien ratings for both peers. RATING SENSITIVITIES Negative: Slow revenue growth and/or higher rates of growth in operating expenses. Negative: Significant escalation in capital needs and additional leverage not supported by revenue increases that cause DSCRs to remain below 1.8x/1.7x on a sustained basis at the senior and subordinated levels, respectively, or net leverage on total debt to remain above 10x for a prolonged period. Negative: Significantly lower revenue than currently forecast from the World Trade Center site because of weaker rental demand, or a widening in sustained operating losses generated on the Port Authority Trans-Hudson transit network. Negative: Political Intervention: Actions by either the state of New York or New Jersey to limit the authority's ability to raise tolls to cover growing debt service obligations, or significant new non-core state-mandated investment that puts additional strain on cash generative core assets. Positive: None expected for the near future because of PANYNJ's large capital plan. TRANSACTION SUMMARY PANYNJ is issuing approximately $1.0 billion 200th through 204th senior lien consolidated bonds to be used for capital projects, commercial paper paydown, and refundings. The 203rd series and 204th series of consolidated bonds are expected to be issued subject to market conditions as tender offer or as direct placement. PERFORMANCE UPDATE Operating performance during FY2016 was solid - gross operating revenue increased to $5.17 billion from $4.83 billion in 2015 (an increase of 7.1%), reflecting volume increases across most of its main business segments as well as a toll increase implemented in December 2015. Tunnels, bridges & terminals (TB&T) saw gross revenue increase by 8.9%, aviation by 4.3%, PATH by 3.6%, and port by 11.2%. Notably, revenue generated by the World Trade Center grew 25.5%, with continued ramp-up of the site broadly progressing in line with expectations. Operating expenses for 2016 increased by 3.9% to $3.0 billion versus the year prior, driven by higher employee compensation costs for pension and other retirement benefits as well as higher security related costs. The agency incurred higher volumes across the transportation business lines and increased World Trade Center expenses were incurred as the site transitioned towards full operations. On the back of strong operating performance, financial metrics remained robust. Fiscal 2016 Fitch-calculated senior DSCR was 2.15x and total DSCR was 2.01x - both stronger than the prior year (2.03x and 1.863, respectively). Fitch notes that authority coverage calculations, including additional non-operating revenue items, are about .40x above the Fitch adjusted results. Senior ND/CFADS (reflecting general reserve fund and consolidated bond reserve fund) was 7x while junior leverage (reflecting inclusion of gross debt secured on subordinate special payment obligations) was 7.9x. PANYNJ's recently approved capital investment plan spans the period 2017 - 2026 and calls for $32.2 billion in total spending to meet its diverse transportation infrastructure needs. The overall size of the program, which is $4.6 billion larger than the previously adopted 10-year capital program, coupled with the inherent challenge of focusing on core assets and responsibilities while controlling the overall budget of high profile projects within a limited revenue envelope, will be one of the primary risks facing the agency for years to come. As compared to earlier capital programs, which had significant spending associated with the World Trade Center real estate complex, the new capital program focuses on transportation infrastructure renewal, expansion, and connection projects, as well as partnership (public and private) initiatives. Leading projects include the Port Authority Bus Terminal Replacement ($3.5 billion), JFK and LaGaurdia Airport infrastructure and access improvements ($2.5 billion), Newark Airport Terminal A redevelopment ($2.34 billion), George Washington (GW) Bridge Restoration ($1.44 billion) and Lincoln Tunnel Helix Replacement ($1.1 billion). Separate partnership programs include Gateway Tunnel ($2.7 billion) as well as long-term public-private partnership agreements at LaGuardia airport's existing Central and Delta terminal buildings. The underlying funding mix for the capital program at this budget level have relatively equal sourcing from debt borrowings and pay-go capital, supplemented by other revenue sources and grants. Future consolidated bonds expected to be issued total approximately $11.3 billion. Some mitigation to cost overrun risks is evident by the contingencies and reserve set-asides within the overall plan as well as ongoing project reassessments during the program life. Still, any material underperformance in net revenue generation in future years could also contribute to more debt in the funding mix if capital spending cannot be reduced. FITCH CASES PANYNJ financial projections reflect modest traffic growth assumptions across its main business areas. No further toll or fare increases are reflected for TB&T or PATH until 2020 (tied to inflation-adjusted mechanism), with other business segments expected to see inflationary price growth. One WTC occupancy is expected to reach its stabilized occupancy level of about 92% by 2019 from its current level of 67% in 2016. Overall operating expenses are forecast to grow on average 2.5% through 2021, with higher increases in early periods driven by cost increases at the WTC site as it transitions to being fully operational, before falling to annual growth rates near 2%. Overall, Fitch considers PANYNJ's forecasts to be reasonable. The Fitch base case largely reflects PANYNJ's forecasts, with some minor adjustments to moderate revenue growth and to assume minimum operating expense growth rates to 2.5%. The Fitch Rating Case is designed to largely test lower WTC rental revenue than in PANYNJ's forecast and incorporate minimum operating expense growth rates of 3.0% over the forecast period. Both Fitch's DSCR and leverage calculations exclude non-operating revenue except for passenger facility charges. In each of the three scenarios, DSCR remains robust, averaging 1.80x at the senior level and 1.70x inclusive of subordinate special obligations. While leverage is relatively high at around 7.9x to 8.5x at the senior level and 9.0x to 9.8x total, reflecting its significant capital investment obligations, PANYNJ's resilient, granular user base and significant pricing power provide substantial mitigants.