N.Y. Thruway Agency Rating Cut by S&P on Tappan Zee Cost

The New York State Thruway Authority, which operates the longest U.S. toll-road system, had its credit rating cut one step to A by Standard & Poor’s because the $3.9 billion Tappan Zee Bridge replacement may overload the agency with debt.

The authority’s reliance on frequent toll increases was also cited by S&P as it dropped the agency’s debt to its sixth-highest grade from A+, in a statement released yesterday. The new span across the Hudson River north of New York City is projected to take six years. Before completing a financing plan, the state is waiting to see if the U.S. will provide a loan.

“The combination of the lack of a specific tolling plan and the potential for lower traffic levels at a time when the NYSTA will increase its leverage significantly led to the downgrade,” Joseph Pezzimenti, an S&P analyst, said in the statement. The agency has debts of about $3.7 billion. S&P changed its outlook on those bonds to stable from negative.

The rating cut is bad timing for Governor Andrew Cuomo, a Democrat who has made the span a priority, comparing it in scope to the 19th century construction of the Erie Canal. The lower credit grade may raise borrowing costs as the authority begins building the biggest project in its 63-year history.

Construction started this month. The state has already borrowed $700 million to help finance the work, which Cuomo has said will be funded by tolls and bonds.

Toll Revenue

Tappan Zee tolls provided almost 20 percent of the authority’s 2012 revenue, S&P said. The agency operates 570 miles (920 kilometers) of highway, according to its website.

“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. “Throughout the past two years, the Thruway Authority has streamlined operations and cut more than $100 million in expenses.”

New York has applied for a U.S. Transportation Infrastructure Finance and Innovation Act loan of more than $1 billion, which would be the biggest awarded under the program. Cuomo, 55, is banking on low-cost federal funds to keep tolls from almost tripling on the new bridge, when it opens.

The loan has taken more than a year to process by the U.S. Transportation Department. Terms will be based in part on the authority’s credit quality, according to federal guidelines.

Tappan Zee

The Tappan Zee Bridge, a 3-mile span that connects Rockland County and Westchester County about 20 miles north of Manhattan, was designed to last 50 years. It opened in December 1955 and carries 138,000 vehicles each day, 40 percent more than intended.

Transportation Secretary Anthony Foxx said at a U.S. Senate hearing in July that the project is “of national significance” and that he expects the loan to be approved.

Matt Wing, a Cuomo spokesman, didn’t respond to a request for comment.

Even with concern over financing the new bridge, investors have been demanding less yield to buy the agency’s debt. Authority bonds maturing in January 2026 sold yesterday with a yield of 3.245 percent, the lowest since February, data compiled by Bloomberg show.

-- With assistance from Sarah Kopit and Michelle Kaske in New York. Editors: Mark Schoifet, Ted Bunker, Pete Young.

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