The New York State Thruway Authority had its credit rating cut one step to A2 by Moody’s Investors Service, which said the agency may not raise tolls fast enough to cover costs for a new $3.9 billion Tappan Zee Bridge.
The drop to the sixth-highest rating also reflects the possibility that the bridge contractor, a group led by Irving, Texas-based Fluor Corp. (FLR:US), won’t be able to meet the project’s schedule and stay within budget, even though most of the costs are fixed under a design-build contract, Moody’s said today in a report.
The agency, which operates the longest U.S. toll road, is already saddled with $3.9 billion in debt, which will more than double as it sells $2.4 billion in bonds and borrows another $1.6 billion through a federal loan it won Oct. 31 to build the new span over the Hudson River.
Of those bonds, as much as $1.6 billion will be junior-lien securities that will allow the authority to increase its borrowing capacity, according to a resolution approved by the Thruway board yesterday. The interest rate on the debt can’t exceed 5.5 percent, the resolution said. The securities will be sold within weeks, Dan Weiller, an authority spokesman, said today by e-mail.
“Failure to deliver the project within budget and on time due to higher project costs, a longer permitting or construction period, or insufficient toll increases to support associated debt would place negative pressure on the rating,” Moody’s said. Moody’s also changed its outlook for the debt to stable from negative.
“We are confident that the Thruway Authority’s credit will remain stable or improve,” Thomas Madison, the agency’s executive director, said in a statement.
Governor Andrew Cuomo, a 55-year-old Democrat, has made building the new span that’s about 20 miles (32 kilometers) north of Manhattan, a priority, comparing it in scope to the 19th century construction of the Erie Canal. It’s among the largest public-works projects in the U.S. The federal Transportation Infrastructure Finance and Innovation Act loan the state received is the largest ever issued under the program.
The downgrade by Moody’s and a similar cut Oct. 29 by Standard & Poor’s hasn’t deterred investors from buying the agency’s debt.
A tax-exempt Thruway Authority bond maturing in April 2015 traded today at an average yield of 0.47 percent, or about 0.1 percentage point more than benchmark munis, data compiled by Bloomberg show. That compares with an average of 0.3 percentage point over the past 99 days. The volume of securities traded today was the most since August, the data show.
Keith Stephens, a Fluor spokesman, didn’t immediately respond to a telephone call requesting comment.
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