Battery Park City prepares new bond sale for waterfront resiliency
5 min read
The Hugh L. Carey Battery Park City Authority is preparing to come to market in the spring with its second borrowing for a coastal protection plan to mitigate the storm surge, flooding and sea level rise that threaten downtown New York City.
The projects are part of a larger effort called the Lower Manhattan Coastal Resiliency Plan to protect the city’s waterfront from the kind of flooding that it suffered in 2012 from Superstorm Sandy and that is projected to worsen under climate change. Sandy inundated Battery Park City with water from along West Street.
“Sandy galvanized us,” the authority’s chief financial officer, Pamela Frederick, said in November at a climate conference hosted by the University of Chicago.
The authority has done an “enormous amount of planning since Sandy, and now we’re in the mode of responding and embarking on a huge resiliency plan,” Frederick said. “We’re preparing for the next storm.”
The city’s waterfront remains relatively defenseless against rising sea levels and flooding even as it has enjoyed strong population growth and remains a tourist destination with vulnerable subway lines, the FDR Drive and Brooklyn-Battery tunnel. The 2019 Lower Manhattan Climate Resilience Study estimated that by 2050, 37% of properties in Lower Manhattan will be at risk from storm surge.
“It’s a prudent step to preserving downtown,” said Fitch analyst Kevin Dolan of the Battery Park authority’s resiliency plans. “They’ve identified the risks that they have with respect to climate change, they’ve seen the destruction that can occur, and they’ve mapped out a plan to mitigate these risks.”
Established in 1968, the Battery Park City Authority is a New York State-controlled public benefit corporation charged with developing and maintaining a mostly residential 92-acre site along the Hudson River. It was built on landfill on Manhattan’s Lower West Side, using materials excavated during the construction of the World Trade Center and other construction projects in the 1970s. It includes 36 acres of parks and public spaces.
The authority carries triple-A ratings on its senior lien debt from Fitch Ratings and Moody’s Investors Service. It has no taxing power and New York City has oversight over the authority’s capital plan and borrowing.
The authority’s resiliency plan includes three interrelated projects: the South Battery Park City Resiliency Project and the North and West resiliency projects, which are still in the planning stages. The projects call for installing flood barriers, elevating land, and reinforcing the piles that support the esplanades.
The plans have sparked some controversy, with residents protesting and picketing certain projects, like the demolition and elevation of Wagner Park. A group of residents Wednesday filed a lawsuit in Manhattan Supreme Court challenging a portion of BPCA’s south project, which was supposed to begin construction a few months ago, because it failed to comply with state environmental review and relying on exaggerated climate projections. The BPCA agreed to halt plans while the legal challenge plays out.
“The South Battery Park City Resiliency project was planned and approved in full accordance with the law. We look forward to continuing the urgent work of protecting our community and Lower Manhattan from the devastation of future storms in the decades ahead,” authority spokesperson Nick Sbordone said in a statement.
The current timeline calls for BPCA to come to market in late spring or early summer with the next tranche of financing, which could total $400 million, Frederick told The Bond Buyer.
Proceeds from the deal would cover a range of capital projects, including those in the south and north/west plans. The 2023 borrowing will likely be followed by other borrowings over the next three to four years to finance the resilience plan, which may carry a $1 billion price tag in total, she said.
“Our overarching goal is to protect our shoreline borders and surrounding perimeter from storm surge and the rising sea level, and the environmental-related matters that result from that,” Frederick said.
Some of the bonds will likely carry a third-party certified sustainable label, as was the case with a chunk of the BPCA’s 2019 bonds, which won The Bond Buyer’s Northeast Deal of the Year award. The transaction, which financed the first phase of BPCA’s resiliency plan, featured $673 million of senior and junior bonds as well as variable-rate debt and notes and $73 million of the third-party designated sustainability bonds.
“Given that the market has moved more in favor of having third-party verifications, we will likely still pursue that,” Frederick said. “We like to earn our triple-A rating, and we like to be consistent and give the market a lot of comfort about how those funds will be invested,” she said, adding that labeled bonds still don’t garner clear pricing premiums and come with more stringent disclosure requirements.
The BPCA hasn’t yet named a financing team though it’s close to a selection of a senior manager, Frederick said. Acacia Financial Advisors LLC is its financial advisor.
The BPCA has about $430 million of AAA-rated senior bonds outstanding from 2013 and 2019, and just under $300 million of junior-lien bonds that carry Aaa ratings from Moody’s and AA-plus from Fitch. The authority also has $148.7 million of unrated junior bonds that were privately placed with a bank in 2019, according to its 2021 annual report.
Payments in lieu of real property taxes back most of the debt, as well as non-PILOT base rents from office, residential and hotel tenants of parcels in Battery Park City.
The BPCA’s parcels generate its revenue, so the plan to protect them is important, said Fitch’s Dolan.
“These actions will help retain the value and the attractiveness of the real estate that drives the authority’s revenues and back its debt,” Dolan said.
The resiliency plan should remain affordable as long as the authority finances it over time with an eye on the debt service payment structure, Dolan said, adding that current debt coverage remains strong.
For the north/west projects — which the 2021 annual report called its largest and most costly — the authority will for the first time use a progressive design-build structure to plan its north and west projects, Frederick said. Bringing in the private team early in the design process allows for more flexibility, she said. “You hope to work well with your partner so you don’t have significant changes over time,” she said. But a design-build structure “takes that element of risk off of the authority side and puts it on the developer side.”
The BPCA’s collaboration with the agencies in the Lower Manhattan Coastal Resiliency Project is key to its credit story, Frederick said.
“What that means to me as a participant in the financial markets is that we can convey to our investors, to our lenders and to the ratings agencies that we have worked in a very coordinated fashion with other stakeholders who share the same risk,” she said. “It’s a large group of stakeholders who all have potential impacts resulting from the incursion of waters into Lower Manhattan.”
