JFK International Air Terminal LLC Rating Raised To ‘BBB+’ On Robust Operations, Criteria Reassessment; Outlook Stable

S&P Global

We are raising our rating to 'BBB+' from 'BBB' on the Port Authority of New York and New Jersey's (PANYNJ) senior secured series 6 and 8 special project bonds issued for JFK International Air Terminal LLC (JFKIAT), which operates Terminal 4. We are raising the rating based on improving credit metrics and assessment of the transaction under our project finance criteria that captures the performance of this essential single asset. The outlook is stable.

We are raising our rating to 'BBB+' from 'BBB' on the Port Authority of New York and New Jersey's (PANYNJ) senior secured series 6 and 8 special project bonds issued for JFK International Air Terminal LLC (JFKIAT), which operates Terminal 4.In 2018, we revised our U.S. public finance transportation criteria, and  in conjunction determined that our project finance criteria are more suitable for assessing this transaction. 

Following completion of the Phase II expansion project in January 2015, the project successfully ramped up to full capacity, with enplanements rising by 22% in 2015, 5% in 2016, and 4% in 2017, and stable performance in 2018, generating robust debt service coverage during a period of escalating debt service requirements.

The stable outlook reflects our view that this performance is sustainable given the strong demand for air service in the New York metropolitan area  market and the limited capacity for airport flight operations.

CENTENNIAL (S&P Global Ratings) Feb. 4, 2019—S&P Global Ratings took the rating actions listed above. Actual enplanement levels for Terminal 4 performed very well relative to prior forecasts, driven by Delta accelerating the Phase II expansion of Terminal 4, which added 11 gates to Concourse B. For example, actual enplanements in 2016 of 10.2 million exceeded the forecast for 2020 (the final year of that forecast). Actual enplanements for 2018 increased by 1% to 10.7 million from 10.6 million the preceding year, reflecting stable operations at the terminal's capacity. We anticipate that future enplanement growth will be modest at less just 0.5% annually, as airlines continue to up-gauge and optimize use of the facility.

The outlook is stable, based on our forecast minimum DSCR of 1.86x in 2020 and our expectation that the project will continue to operate without material service interruptions. We expect it to generate robust DSCRs consistent with recent past performance between 1.8x and 2x. During the next two years, we anticipate that discussions with Delta regarding the Phase III expansion project will continue.

We could lower the rating if enplanements drop significantly, materially weakening debt service coverage to 1.75x or below. Erosion in credit quality for Delta alone, however, would not directly affect the rating. We may also lower the rating if additional debt is issued related to expansion plans or other purposes that reduce our forecast coverage given the absence of robust restrictions on additional parity debt, or due to increased risk due to construction if counterparty risk is not sufficiently mitigated.

We could raise the rating once event risk related to Phase III expansion subsides, specifically if we are comfortable that the construction-related risks are mitigated such that a higher project rating would be warranted, or if JFKIAT stops the project. We could also raise the rating if operational efficiencies widen margins such that the project achieves DSCRs of 2.5x or better in a manner that we believe will be sustainable.