New York, April 21, 2016 -- Moody's Investors Service today assigned a provisional (P)Baa3 rating
to the New York Transportation Development Corporation's (NYTDC or Conduit
Issuer) Special Facilities Bonds (LaGuardia Airport Terminal B Redevelopment
Project), consisting of up to approximately $2.354
billion of Tax-Exempt Special Facilities Bonds (LaGuardia Airport
Terminal B Redevelopment Project) Series 2016A, up to approximately
$150 million of Taxable Special Facilities Bonds (LaGuardia Airport
Terminal B Redevelopment Project) Series 2016B and up to $500 million
Taxable Special Facilities Bonds, Series 2016C (LaGuardia Airport
Terminal B Redevelopment Project). The Series 2016C bonds,
if issued, will be privately placed drawdown bonds with a nominal
amount drawn at financial close and the remaining funds drawn on a single
date between one and two-years after financial close. The
exact amount of each series will be dependent on market conditions,
though Series 2016B and Series 2016C bonds will be issued mutually exclusive
from one another, and the aggregate amount of tax-exempt
and taxable bonds is expected to be approximately $2.512
billion. The rating outlook is stable. The rating is based
on information provided to Moody's as of April 18, 2016.
Upon review of substantially final documents and verification that there
have been no material changes to the project documents as reviewed to
date, Moody's will assign a final rating.
LaGuardia Gateway Partners, LLC (LGP, also the "lessee"
and "borrower") is a special purpose company equally owned
by units of Vantage Airport Group (New York) Ltd. (Vantage),
Skanska Infrastructure Development (Skanska ID), and Meridiam Infrastructure
North America (Meridiam). LGP will enter into a Lease Agreement
("lease") with the Port Authority of New York and New Jersey
(PA, Aa3 stable) for a 34.6-year term to operate Terminal
B, the largest of four terminals at LaGuardia Airport (LGA) in New
York, NY. Under the terms of the lease, LGP is charged
with the design, building, financing, operation and
maintenance of a new Terminal B, operation and demolition of the
existing Terminal B, and the construction of various support and
related projects. All together, the individual components
constitute the construction project. LGP will enter into a back-to-back
design and construction contract with a joint-venture backed by
Skanska AB and the Walsh Group for the design and construction scope of
work and a management services agreement with a Vantage affiliate for
management and support services in connection with the operations and
maintenance scope of work.
RATINGS RATIONALE
The (P)Baa3 rating reflects the following considerations:
• The high level of air traffic demand at LaGuardia will overcome
the high project costs to access the facility. Terminal B operates
in a largely constrained but highly sought market, which reduces
the ability of airlines to seek other facilities in the New York City
region. LGA operates under federally imposed landing "slot"
constraints, similar to competing airport JFK International Airport
(JFK), and while Newark Liberty Airport (EWR) will begin to operate
without slots beginning in October 2016, EWR lacks large amounts
of gate capacity to accommodate a large scale diversion of operations
from LGA. While the PA imposed restrictions on markets served from
LGA limit service, 75% of the US population lives within
the markets able to be served by the airport.
• Federal regulations governing the borrower's ability to set
rates are well understood. In the absence of an airline lease agreement
in the new facility, it is clear that the borrower has the ability
to recover operating expenses, debt service, and reasonable
equity return. While the possibility of a lease agreement would
decrease rate-making risk, Moody's feels that the rate
recovery mechanisms absent an airline agreement are strong for a privately
managed terminal.
• Construction risk is a key credit driver in the rating given the
contractually required long stop date contained in the lease and Moody's
view that the project is among the most complex it has rated in a stand-alone
transaction. The terminal design proposed by LGP does much to minimize
construction staging, but the requirement to build around the existing
facility while maintaining operations introduces the potential for schedule
delays. Delays would echo through the whole project given the highly
sequential nature of construction. The construction risk is additionally
amplified by poor geotechnical conditions, known environmental contamination,
and limitations on the ability to access the site by commercial vehicles.
• The experienced construction joint venture (CJV) backed by Skanska
AB and the Walsh Group combines New York City, PA, major airport
experience and financially strong contractors. All portions of
the construction project will be completed by the CJV pursuant to a fixed-price,
date certain contract. The CJV is a fully integrated joint venture
between Skanska USA Building Inc., Skanska USA Civil Northeast
Inc. (together Skanska) and Walsh Construction Company II,
LLC. with Skanska acting as the lead partner. Skanska has
extensive experience in the NYC market and working with the PA on the
approximately $1 billion World Trade Center Transportation Hub
and the $1.2 billion AirTrain DBOM project at JFK.
Walsh's extensive large airport (Los Angeles International's
Tom Bradley International Terminal) and PPP (East End Crossing) experience,
demonstrates additional strong project delivery track record. The
performance obligations of the CJV are backed by liquidated damages (LDs)
sized to keep the project whole in the event of delays, and the
obligations to pay LDs are backed by the ability to withhold payments
during the construction period and by a letter of credit initially sized
at 6.5% of the construction price. Liquidity available
is sufficient to keep the project solvent through the twelve month long-stop
date.
• The financing structure utilizes a conduit structure backed by
a leasehold mortgages on the lease. The collateral, including
the leasehold mortgages and various accounts of the borrower and direct
agreements with project parties, are managed through a collateral
agency agreement with Bank of New York, which also acts as securities
intermediary and trustee. The lease acknowledges the rights of
a recognized leasehold mortgagee to remedy most declared borrowed events
of default within 120 days, though the PA may extend those deadlines
if the mortgagee has demonstrated progress towards remedying the default.
The PA will enter in a new agreement with the mortgagee in the event that
the lease is discharged in a borrower bankruptcy, providing bondholders
with security that survives a loss of the lease due to bankruptcy.
Moody's views the lender protections in the lease to be strong.
• The presence of the Series 2016C deferred drawn bonds introduces
risk to the financing structure that funds will not be available to fund
construction completion, however the single draw down date,
the presence of minimum rating requirements for future bond purchasers,
and ample 12-month schedule room before funds are needed help mitigate
the risk of the deferred funding. Moody's also expects that
the bond purchasers will have experience in the mechanism of deferred
draw private placements. Lastly, the ability to recover actual
interest rate cost in airline rates and charges helps to mitigate increased
interest rate expense in the event that structural protections do not
result in funding under the original terms. While bond purchasers
have the ability to withhold funding in the event that an event of default
under the indenture has been declared by the trustee, there are
limited contractual obligations during the two year maximum draw period
that would result in an event of default . The major risk of default
during this period given the terms of the agreements would be a bankruptcy
of the CJV, which is low given the current credit assessment of
the CJV members.
• The borrower is expected to see an average debt service coverage
ratio (DSCR) of (1.30) over the life of the lease post-construction
in Moody's base case and as calculated on Moody's annuity
basis. Debt service is expected to increase each year, which
will require annual growth or an increase in airline rates to maintain
coverage. Given the allocation of capital costs at the facility,
airline rates and charges will approximate coverage of debt service while
revenue from concession spaces will provide excess coverage, equity
return, and revenue sharing to the PA. Bondholders are protected
by a rate covenant at 1.25 times DSCR after completion of the construction
project and a restricted payments test (which includes revenue sharing
with the PA) at 1.20 times. No equity cures are allowed
for the restricted payment test. Bondholders additionally benefit
from a 6 month debt service reserve (allocated by series) which will be
funded over time and fully funded by the completion of the construction
project, and from a major maintenance reserve account sized to the
next five years of capital requirements following completion of the construction
project, though the reserve reverts to the PA in the last five years
as a handback reserve.
Outlook
The stable outlook reflects the expectation that the project will be completed
with limited delays, the Series 2016C bond purchasers will fund
their future requirements as scheduled, and terminal usage will
generate the forecast operating metrics.
What could change the rating up:
The rating is unlikely to be upgraded until after the end of the project's
construction and traffic performance remains at or exceeds projections.
What could change the rating down:
The rating could be downgraded if the construction is delayed materially
beyond the target date for the completion of the entire construction project,
Skanska's credit worthiness materially weakens or project funding
is delayed. Once construction of the new Terminal B is complete,
the rating could be downgraded if there is a material weakening in the
competitive position of the airport leading to domestic air traffic levels
below projections and substantial decrease in key financial metrics.
RATINGS RATIONALE
The principal methodology used in these ratings was Privately Managed
Airports and Related Issuers published in December 2014. Please
see the Ratings Methodologies page on www.moodys.com for
a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Earl Heffintrayer
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Chee Mee Hu
MD - Project Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns (P)Baa3 to New York Transportation Development Corporation's Special Facilities Bonds (LaGuardia Airport Terminal B Redevelopment Project); outlook stable
