S&P raises Hudson Yards Infrastructure Corp. bonds to AA

S&P Global Ratings raised New York's Hudson Yards Infrastructure Corp.'s long-term and underlying ratings on outstanding revenue bonds to AA from AA-minus. The outlook is stable, S&P said, in line with that of New York City.

"The upgrade reflects progress and ongoing development at Hudson Yards that has led to increased payments in lieu of (real estate) taxes (PILOTs)," said S&P credit analyst Felix Winnekens, "which are now more than sufficient to cover debt service payments, mitigating the risk of non-appropriation of the city's tax equivalency payments and allowing us to align the rating on HYIC with that on New York City."

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HYIC is a local development corporation founded in 2005 by the city as a not-for-profit entity. It was created to finance property acquisition and infrastructure work, such as the extension of the No. 7 subway line, as part of the development of the Hudson Yards Financing District. Its bonds are secured by revenues, including PILOTs and payments from the city under an annual appropriation.

The corporation last sold bonds in 2021 when Goldman Sachs priced $454 million of Series 2022A revenue green bonds. Ahead of that sale, Moody's Investors Service upgraded the HYIC's $2.7 billion of outstanding revenue bonds to Aa2 from Aa3 and assigned a stable outlook.

S&P said an important factor in deciding on the upgrade was the general creditworthiness of the city's general obligations (AA/stable) and the Big Apple's status as a global economic and employment center with a high-value real estate market.

While still somewhat pressured following the pandemic, S&P said, the city continues to experience investment and has grown through various economic cycles.

Other factors that influenced the ratings upgrade included:

• The rezoning and adoption of a uniform tax-exemption policy providing for various exemptions to encourage growth in the project area;
• The evolution and ongoing development activity in the project area, which has resulted in PILOT revenue providing debt service coverage of more than one time in fiscal 2023; and
• The HYIC's five-member board of directors appoints the corporation's officers, all of whom are city employees, and the city primarily oversees HYIC's limited operations.

S&P said the stable outlook reflects its view the PILOTs are now sufficient to provide at least one time debt service coverage on an ongoing basis, based on existing and recently completed developments.
"We could lower the rating if PILOT revenues were no longer sufficient to cover debt service payments, necessitating HYIC to again rely on city appropriations for interest support payments," S&P said. "We could also lower the rating if we lowered our rating on the city's GO debt."

Conversely, S&P said it could raise the rating in conjunction with a ratings upgrade of the city's GOs.