Fitch Rates Metropolitan Transportation Authority (NY) Revs 'A'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'A' rating to the Metropolitan Transportation Authority (MTA), New York's $200 million revenue variable-rate refunding bonds, subseries 2002D-2 (floating-rate tender notes). The 2002D-2 bonds are expected to be remarketed ahead of the mandatory tender date of May 27, 2014.

Additionally, Fitch affirms the 'A' rating on approximately $19 billion (excluding bond anticipation notes (BANs) and commercial paper (CP)) in outstanding MTA transportation revenue bonds. The affirmation includes the MTA's subseries 2012A-2 bonds which are expected to be remarketed ahead of the mandatory tender date of May 15, 2014.

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 7.6 million daily subway and bus riders and Metro-North Railroad (MNR) and Long Island Rail Road (LIRR) carrying another 566,000 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 (excluding Sandy Recovery) 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 billion of MTA capital projects were added in the wake of Hurricane Sandy related damages and more recently $5.7 billion in MTA mitigation projects was 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.

RATING SENSITIVITIES

--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;

--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.

SECURITY

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.

TRANSACTION SUMMARY

The subseries 2002D-2 bonds were used to finance transit and commuter projects. The 2002D-2 bonds are expected to be remarketed and bear a variable interest rate equal to the adjusted LIBOR rate. The subseries 2012A-2 bonds were used to finance transit and commuter projects. The subseries 2012A-2 bonds are expected to be remarketed and bear an interest in the term rate mode at a variable rate equal to the adjusted SIFMA rate.

On April 17, 2014 the MTA entered into a letter of understanding with the Transport Workers Union Local 100 (TWU Local 100). The new agreement must still be ratified by the TWU Local 100 membership and then it will be presented to the MTA board for approval. Previous financial plans from the MTA incorporated 'three net zeros' for the new agreement. The new agreement (if approved) will run from Jan. 16, 2012 through Jan. 15, 2017 and will include retroactive pay increases of 1.0% effective Jan.16, 2012 and Jan. 16, 2013 and 2.0% increases for 2014, 2015, and 2016. The new agreement includes increased contribution levels from the membership for health and other benefits as well as expanded benefits related to optical and dental benefits and maternity and paternity leave and other improved benefits.

The MTA expects to fund the retroactive portion of the new agreement from the release of general reserves for voluntary deposits to the MTA LIRR pension plan which would have reduced the unfunded liability sooner and would have reduced future expenses. In addition, ongoing costs associated with the new contract will also be funded from funds budgeted for voluntary deposits to the LIRR for additional pensions and a portion previously allocated for voluntary deposits into the OPEB trust for future retiree healthcare costs.

Fitch will follow the ratification process closely and comment further on the final agreement. Additionally, Fitch is closely monitoring the other labor union agreements currently under negotiation. Should the outstanding labor agreements be agreed to and follow a similar cost and benefit structure, the MTA will face additional costs than those previously detailed in the MTA's 2014-2017 February Financial Plan (2014 Adopted Budget).

For more information on the MTA's credit profile please see 'Fitch Rates Metropolitan Transportation Authority (NY) Revs at 'A'; Outlook Stable' (dated Feb. 12, 2014), 'Fitch Affirms Metropolitan Transportation Authority (NY) Revs at 'A'; Outlook Stable' (dated Sept. 4, 2013) or 'Fitch Rates Metropolitan Transportation Authority (NY) Revs at 'A'; Outlook Stable' (dated March 26, 2014) which are 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' (July 11, 2012);

--'Tax Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682867

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

Additional Disclosure

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Contacts

Fitch Ratings
Primary Analyst:
Chad Lewis, +1-212-908-0886
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY, 10004
or
Secondary Analyst:
Emma Griffith, +1-212-908-9124
Director
or
Committee Chairperson:
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Media Relations:
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Chad Lewis, +1-212-908-0886
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY, 10004
or
Secondary Analyst:
Emma Griffith, +1-212-908-9124
Director
or
Committee Chairperson:
Scott Zuchorski, +1-212-908-0659
Senior Director
or
Media Relations:
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com