NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A' rating for the Metropolitan Transportation Authority, New York's (MTA) approximately $18.3 billion in outstanding MTA transportation revenue bonds. The Rating Outlook is Stable.
KEY RATING DRIVERS
-- Strategic Importance: The MTA transportation network is essential to the economy of the New York region, with New York City Transit carrying an average of 8 million daily subway and bus riders and Metro-North Commuter Railroad (MNCR) and Long Island Railroad carrying another 528,000 daily commuter rail passengers. While an independent authority, the MTA has received significant support from the State of New York in the form of additional tax sources aimed at closing projected operating budget gaps and addressing capital needs.
-- Highly Constrained Financial Operations: Despite high debt service coverage ratios from gross pledged revenues, the MTA's financial position is constrained given its extremely large operating profile and high fixed costs, including significant retiree pension benefits. In addition, some of the MTA's operating subsidies are vulnerable to economic conditions. While the MTA is required to provide a balanced current year budget, some tools available to meet a balanced budget, such as service reductions and fare increases, are politically unpopular.
-- Strong Security Pledge: The bonds are secured by a gross lien on a diverse stream of pledged operating and non-operating revenues.
-- Extremely Large Capital Needs: The MTA anticipates issuing a total of $10.5 billion in debt and a $2.2 billion Railroad Rehabilitation and Improvement Financing (RRIF) loan to fund the $22.2 billion 2010 - 2014 MTA Capital Program, some of which has already been issued. In January 2013, $4.0 billion of MTA capital projects were added in the wake of Superstorm Sandy related damages and more recently $5.7 billion in MTA mitigation projects were added. The MTA has the constant challenge of delicately balancing the large rehabilitation and expansion needs of the system while covering operating expenses and maintaining financial flexibility.
-- Growing Annual Debt Burden: The MTA's capacity to continue to leverage resources to fund expansion projects while meeting renewal and replacement needs may be limited in the future if projected financial performance or additional operating subsidies do not come to fruition.
-- Inability to achieve future projected operating efficiencies and implement other key elements of the cost reduction initiatives and/or maintain an ongoing state of good repair and other elements of the capital program;
-- Significant cost overruns or delays in the capital program's mega-projects that lead to additional borrowing;
-- An unfavorable outcome from various ongoing lawsuits related to the MTA's payroll mobility tax (PMT);
-- Future service cuts or deferral of core capital projects that result in deterioration of key transportation services;
-- Receipts in dedicated tax subsidies that are measurably below forecasted levels.
The transportation revenue bonds are secured by a gross lien on the MTA's operating receipts and 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.
The MTA's 2014 - 2017 July Financial Plan forecasts a surplus of approximately $182 million in 2013 prior to Superstorm Sandy related costs and other policy actions related to unfunded pension liabilities. When combined with the prior year cash balance of $229 million, the projected 2013 surplus is $141 million. Projected negative cash balances before the application of prior-year carry-over cash and planned fare and toll increases, MTA initiatives and policy actions for 2014 - 2017 begin at $130 million and grow to $1,019 million. After implementation of fare and toll increases and other initiatives, 2014 has a small surplus of $6 million and projected negative cash balances decline to a controllable $49 million in 2015, $91 million in 2016 and $100 million in 2017.
The July Financial Plan generally shows a more positive near-term financial profile when compared to the February Financial plan due to higher real-estate subsidies (Urban Tax) and toll revenues, lower pension and health and welfare costs and reduced debt service costs. Partially offsetting these positives are lower than anticipated PMT and Petroleum Business Tax receipts and fare revenues, higher insurance premium as a result from impacts associated from Superstorm Sandy, the MTA Metro-North Railroad New Haven line derailment costs and operating cost 'build-up' associated with the 'mega' projects (East-Side Access, 2nd Ave Subway and the 7-line extension).
Risks to the delicately balanced plan include the ability to achieve a favorable outcome from the current labor negotiations, potential volatility in some operating subsides (real estate related dedicated tax sources), greater than expected elasticity from future proposed fare and toll increases and the ability of the MTA to deliver on planned operating efficiencies. To the extent that any of these elements fail to reach current expectations, projected year end cash balances could be significantly larger than currently estimated. While the MTA has a demonstrated history of closing outer-year deficits, it is Fitch's opinion that the options available for new revenue generation are fewer in the current environment; however, the MTA continues to explore and implement new operating efficiencies and cost reduction measures to close outer-year gaps.
The July Plan provides further clarity on the ongoing impacts from Superstorm Sandy. The MTA currently estimates $5.1 billion in losses, including $350 million in lost fare and toll revenue and expenses necessary to prepare for and restore services and the remaining $4.76 billion in damages to the MTA's infrastructure. Recently, the MTA estimated $5.7 billion in MTA related mitigation capital projects ($5.8 billion system-wide) aimed towards preventive measures to endure potential future storms.
The Federal Transit Administration's (FTA) current allocation of disaster relief related to Superstorm Sandy recovery efforts to the MTA is $3.79 billion, including $898 million dedicated to finance a portion of the aforementioned $5.7 billion MTA mitigation projects. Fitch will continue monitor the timing of funds received under the Sandy Relief Act, passed in late January 2013 which provides a total of $10.9 billion in FTA Emergency Relief funding for affected public transportation facilities for infrastructure repairs, debris removal, emergency protection measures, costs to restore service and hardening costs as well as other developments related to the projected infrastructure needs including potential additional debt needs.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
-- 'Rating Criteria for Infrastructure and Project Finance' (July 11, 2012);
-- 'Tax Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Tax-Supported Rating Criteria