KBRA Assigns BBB- Ratings to JFK NTO LLC's $2.0 Billion Special Facilities Revenue Bonds and Affirms Existing Ratings
KBRA assigns its BBB- ratings to JFK NTO LLC's aggregate $2.0 billion special facilities revenue bonds (series 2023 bonds), and affirms the existing ratings associated with JFK NTO LLC's senior secured facilities for Phase A of the Terminal One redevelopment project, also called New Terminal One (NTO), at New York's John F. Kennedy International Airport (JFK). A portion of the series 2023 bonds ($800 million) benefit from a financial guaranty policy issued by Assured Guaranty Municipal Corp., which has a KBRA rating of AA+. The Outlook is Stable. The financing plan originally consisted of a single five-year term loan with two tranches totaling $6.33 billion, along with a $200 million liquidity facility, a $50 million working capital facility, and a $50 million security deposit facility to be borrowed by the New York Transportation Development Corporation, a local development corporation, as conduit issuer, and subsequently on-lent to JFK NTO LLC (the borrower). Funding also includes $2.33 billion of sponsor equity (backed by letters of credit). Together with other available sources, the borrower is refinancing approximately $2.0 billion of outstanding term loan and delayed draw term loan, which was issued in 2022 with the issuance of $2.0 billion in series 2023 private activity bonds (PAB) (the series 2023 bonds) through the conduit issuer.
This design-build-finance-operate-and-maintain project at Terminal One-JFK's only exclusively international terminal-is the largest terminal redevelopment effort within a wider redevelopment plan for the airport. The project operates under a lease agreement through December 30, 2060, with the Port Authority of New York and New Jersey (PANYNJ).
A design-build (DB) agreement has been executed with Tishman Construction Corporation of New York (the DB Contractor) for Phase A of NTO, which encompasses a $5.7 billion brownfield redevelopment of Existing Terminal 1, Terminal 2, Former Terminal 3 and Green Garage sites. Phase A of NTO will provide a 1.7 million-sf terminal with 13 widebody contact gates and one temporary widebody gate. Under the scope of the agreement, the NTO facility will be built on the sites of the former Terminal Two and former Terminal Three. The construction plan has been designed to minimize disruptions and allow Existing Terminal 1 to continue to operate through completion of Phase A in 2026.
The borrower will manage NTO in conjunction with Ferrovial Airports US Operation and Management Services LLC (Ferrovial Airports), which will provide consulting, technical services, and staff training before and after the date of beneficial occupancy (DBO). The project is led by a consortium formed by Ferrovial, Carlyle, JLC Infrastructure, and Ullico (collectively, the sponsors).
Key Credit Considerations
(+) Construction Works Are Progressing
The notice to proceed (NTP) was formally issued on June 10, 2022. Since then, design has progressed as planned. PANYNJ issued a letter on April 20, 2023, allowing the comprehensive final design (CFD) process to close and to progress with advanced final design (AFD). The contractor has been able to mitigate non-critical delays that occurred with respect to foundation works as a result of increased utilities relocation through resequencing of specific elements and working extended shifts. This approach has given the lead technical advisor (LTA) comfort that the Phase A DBO date of June 1, 2026, remains unchanged as of September 2023.
(+) Construction Payment and Progress to Budget
The total NTO project costs remain unchanged from the original budget of $5.739 billion. As of the end of September 2023, the project's overall progress of 28.1%, based on payments made, is between the early forecast of 31% and the late forecast of 26%. Since NTP was issued, the DB contract sum has increased to $3.954 billion from its original budget of $3.927 billion due to change orders and usage of the developer's contractor bussing allowance. These increases have been funded from different allowances and contingencies available. There are a number of approved uses of project contingency; to date, this approved usage totals $105.4 million or 24% of total project contingency. There is $694 million of remaining contingency.
(+) New York's Primary International Gateway
JFK is New York's primary airport for international travel, accounting for 67% of total international traffic in New York.
(+) Guaranteed Maximum Price Contract
There is a DB contract with Tishman. KBRA views the contract terms fvorably, as it passes on the project's obligations and liabilities for construction to a third party for a fixed guaranteed maximum price (GMP). The agreement has an incentive structure, including a bonus for construction contingency savings, which we view favorably, as this ensures incentives are aligned.
(+) Experienced Participants
While the construction schedule is complex and relies on interactions with PANYNJ, Tishman is the ultimate DB counterparty, and it has significant experience in aviation projects and coordinating with PANYNJ.
An upgrade is unlikely at this time due to the extensive refinancing risk. Once construction is complete and the term loan has been replaced with long-term financing, an upgrade could occur if air traffic and revenue significantly exceed forecasts for an extended period.
In the short term, a downgrade could occur due to construction delays. Once the project is operational, a downgrade is possible if traffic or revenue is lower than expected or if operating expenses are significantly higher than forecast.
The DB Contractor intends to design and construct the project to achieve LEED Silver Certification and to provide the information necessary to achieve as many additional credits for LEED Gold Certification as are reasonably obtainable without additional design changes or any schedule/cost impacts.
NTO's environmental, social, and governance (ESG) goals include a target of 30% minority- or woman-owned business enterprise participation across all disciplines and phases through various professional services and other contracted functions.
During construction, the terminal will create over 10,000 total jobs, including more than 6,000 family-sustaining construction positions. Hiring is expected to be focused on the surrounding communities.
New Terminal One is an international airport terminal. As such, government bodies dealing with immigration, customs, and security have specific requirements that need to be taken into account. Ferrovial's U.S. staff has extensive experience dealing with various government agencies to ensure their involvement from the start of the project.
The ring-fence structure of this project finance transaction helps mitigate governance risk. Separately, cybersecurity is an increasing concern for energy and infrastructure projects across the world. A cybersecurity attack could not only temporarily halt operations, but also have a longer-term effect on the issuer's management procedures.
Under KBRA's rating case, we expect the project to have average debt service coverage ratios (DSCR) of 1.87x through the term of the lease, and discounted cash flow-to-debt ratios of above 1x at each planned refinancing point. The rating and Stable Outlook reflect the project's contractual structure, the DB Contractor's experience, and substantial liquidity from payment and performance bonds during the design and construction term.
Once operations have been transferred to NTO, debt for the project will primarily be repaid by aeronautical revenues consisting of facility charges expressed as costs per enplanement (CPE) by the user airlines.
The Stable Outlook reflects JFK's long history as the premier international gateway in the New York area. NTO will provide additional widebody gate access and services to orphan international airlines operating at JFK. An upgrade over the short term is unlikely given the construction and refinancing risks. Once construction is completed and long-term financing is in place, an upgrade could occur if traffic and revenues significantly exceed expectations. A downgrade could be triggered by extensive construction delays or traffic volumes that are consistently under KBRA's forecast.
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Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
Doc ID: 1002810