Fitch Rates MTA's (NY) Transportation Rev Bonds 'A+'; Outlook Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A+' underlying rating to the Metropolitan Transportation Authority's, New York (MTA, or the authority) $400,000,000 transportation revenue bonds, series 2011A. Fitch also affirms the 'A+' rating on $14.3 billion in outstanding transportation revenue bonds. The Rating Outlook is Negative for all bonds.

The Negative Rating Outlook reflects continued financial pressures detailed in MTA's 2011-2014 February Financial plan (2011 Adopted Budget), which shows a balanced budget in 2011 but increased deficits from 2012-2014 as compared to the November Financial Plan. While 2013 benefits from toll and fare increases and shows a manageable deficit of $37 million, projected deficits for 2012 and 2014 are significantly higher at $247 million and $482 million, respectively, up $40 million and $42 million from the November financial plan. In these years, the MTA is facing significant challenges. Furthermore, the deficits already include a number of assumptions related to fare/toll yields which may be affected by local and regional economic conditions and key MTA initiatives including the implementation of numerous efficiency measures that must still come to fruition. While there has been some clarity related to the near-term performance of the payroll mobility tax (PMT), other dedicated taxes continue to be volatile and vulnerable to the local and national economic conditions. The MTA is also vulnerable to state actions that could delay or reduce state aid and other funding subsidies that support operations.

Fitch notes that while the MTA has a proven track record of closing near- to medium-term deficits, the current financial plan's 2012 and 2014 deficits are of heightened concern given the more limited options available to the MTA after significant actions on both revenues and expenses in the past two years. As in the past, Fitch expects the MTA will close the projected deficits through a combination of higher toll and fare increases, additional cost reduction and/or additional subsidies from external funding partners, all of which are uncertain. Lack of clarity on the funding of the MTA's capital plan is also a significant issue given the more than $7 billion in parity debt issuances expected over the next two to three years. Continued borrowing without longer-term solutions to annual deficits could lead to rating pressure.

RATING RATIONALE:

--Gross lien on a diverse stream of pledged revenues to meet debt service payments;

--Essentiality of the MTA's transit network to the economy of the New York region;

--Demonstrated ability of the MTA to produce near-term solutions for its operating and capital needs;

--Need to generate sufficient cash to adequately cover operations of the system despite high debt service coverage ratios (DSCRs) as well as some future leveraging on the transportation revenue credit for capital;

--Increasing annual debt burden;

--Significant funding needs for the large $24 billion 2010-2014 Capital Program;

--Political pressures to continue to leverage resources to fund expansion projects at the expense of ongoing renewal and replacement needs.

WHAT MAY TRIGGER A DOWNGRADE

--Inability to achieve operating efficiencies and other key elements of the cost reduction goals as well as close forecasted budget deficits while maintaining ongoing state of good repair elements of the capital program;

--Significant cost overruns or delays in the capital program's mega-projects that would require additional funding;

--Additional service cuts or deferral of core capital projects that result in deterioration of key transportation services of the system;

--Deterioration in dedicated tax subsidies.

SECURITY:

The transportation revenue bonds are primarily secured by operating receipts and operating subsidies, including transit and commuter rail fares and other operating revenues, surplus toll revenues, and certain dedicated tax sources, state and local operating subsidies, and reimbursements.

CREDIT SUMMARY:

Operating revenues from transit, bus, commuter rail and the bridges and tunnels year-to-date (YTD) through May are tracking close to budget, while total operating expenses are tracking slightly below budget, at around 1.2%. Receipts from dedicated operating subsidies including new state aid, state dedicated taxes and real estate related taxes have been mixed. New state aid comprised of the payroll mobility tax (PMT) and MTA Aid (license fee, vehicle registration fee, taxi fee and automobile rental fee) are currently tracking budgeted estimates, while real estate taxes consisting of the regional mortgage recording tax and New York City urban taxes are tracking around 10% higher, reflecting some rebound in the real estate market.

The MTA's 2010-2014 $23.8 billion capital program comprised approximately $18.1 billion in core projects on the existing system and $5.7 billion for expansion projects. Currently the first two years of the capital plan are fully funded. While debt is expected to finance the capital program, years 2012-2014 have a significant funding gap. Fitch expects the MTA, as demonstrated in the past, to pursue federal grants and/or additional state and local resources to fund the large gap. In the event that other resources are not available, additional leveraging cannot be ruled out which would likely place increasing pressure on the MTA's operating budget and its already significantly constrained financial flexibility. The MTA faces endless capital needs and operating challenges, so timely action will be absolutely necessary to maintain adequate levels of service, safety, and state of good repair on existing facilities, as well as maintaining a schedule for current and planned capital expansion projects. Given the near-term pressure the MTA is facing, it will need to delicately balance funding for capital projects while maintaining financial flexibility for transit and commuter rail service operations.

The MTA is responsible for North America's largest transit network, serving 2.6 billion riders annually. The authority's network is essential to the economic well-being of the region, handling 80% of all daily trips to Manhattan's business district.

For additional information on the MTA, see Fitch's press release 'Fitch Rates MTA's (NY) Transportation Revenue Bonds 'A+', Negative Outlook', dated Sept. 30, 2010, available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance', (Aug. 16, 2010).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.