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

NEW YORK--()--Fitch Ratings has assigned an 'A' rating to the Metropolitan Transportation Authority (MTA), New York's $500 million transportation revenue bonds series 2014D consisting of $400 million subseries 2014D-1 (fixed rate) and $100 million subseries 2014D-2 (SIFMA floating rate notes).

Additionally, Fitch affirms the 'A' rating on approximately $19.5 billion (excluding bond anticipation notes (BANs) and commercial paper (CP)) in outstanding MTA transportation revenue bonds.

The 'A' rating reflects the gross lien on a diverse stream of pledged revenues, the essentiality of the MTA's transit network to the economy of the New York region, and the demonstrated ability of the MTA to produce near-term solutions for its operating and capital needs. The rating also reflects the need to generate sufficient cash to adequately cover operations of the system despite high debt service coverage ratios (DSCRs).

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 8.05 million daily subway and bus riders and Metro-North Railroad and Long Island Rail Road (LIRR) carrying another 576,000 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 DSCRs 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.

Solid Security Pledge: The bonds are secured by a gross lien on a diverse stream of pledged operating revenues consisting of transit and commuter fares and excess bridge tolls and non-operating revenues consisting of various regional taxes.

Extremely Large Capital Needs: The MTA anticipates issuing a total of $12.7 billion in debt (excluding Sandy Recovery) to fund the $22.2 billion 2010-2014 MTA Capital Program, some of which has already been issued. 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.

Peer Comparison: Given the size and breadth of the MTA's network of transportation assets, there is no direct comparison for the entity.

RATING SENSITIVITIES

Negative: 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.

Negative: Significant cost overruns or delays in the capital program's mega-projects that lead to additional borrowing or deferral of core capital projects.

Negative: Receipts in dedicated tax subsidies that are measurably below forecasted levels could pressure the MTA's financial flexibility.

Positive: Given small near-term operating surpluses but medium-term projected deficits positive rating movement is unlikely at this time.

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 2014D bonds are being issued to finance transit and commuter projects. The subseries 2014D-1 bonds will have a fixed interest rate. The subseries 2014D-2 bonds will bear interest at a variable rate equal to the adjusted SIFMA rate. The adjusted SIFMA rate is equal to the SIFMA rate (determined Wednesday of each week) plus the applicable spread.

For more information on the MTA's credit, please see Fitch's press release 'Fitch Affirms Metropolitan Transportation Authority (NY) Revs at 'A', Outlook Stable' dated August 29, 2014 available at www.fitchratings.com.

Fitch continues to monitor the MTA's 2015 - 2019 Capital Program approval process. At its Sept. 24, 2014 meeting, the MTA Board reviewed and authorized submission for the $29 billion proposed 2015 - 2019 Transit and Commuter Capital Program to the Capital Plan Review Board (CPRB). Additionally, the $3.1 billion Bridges and Tunnels Capital Program (not subject to CPRB approval) was submitted. The Proposed 2015 - 2019 Transit and Commuter Capital Programs are expected to be funded from a variety of sources, including bonds, State, City and Federal funds, and currently projects a $15.2 billion funding gap. The projects identified in the approved 2015 - 2019 Bridges and Tunnels Capital Program will be funded with a combination of MTA Bridges and Tunnels bonds and PAYGO.

Fitch notes that prior MTA Capital Programs have had significant funding gaps similar to this size ahead of CPRB approval. The submission of the proposed 2015-2019 Transit and Commuter Capital Programs to the CPRB is the first step in a process that will require MTA and the CPRB to work with funding partners to address the $15.2 billion funding gap. On Oct. 2, 2014, the Review Board vetoed the Proposed 2015 - 2019 Transit and Commuter Capital Program without prejudice. The Proposed 2015 -2019 Bridges and Tunnels Capital Program may also be modified prior to final adoption. Fitch will continue to monitor the approval process and funding solutions to close the significant gap.

The essentiality of the system to the greater NYC area and surrounding counties is manifested by more than eight million daily riders. As previously demonstrated, Fitch expects the MTA will successfully implement its Capital Plan with funding from MTA bonds and its City, State and Federal partners. MTA bonds across all liens are possible, including transportation revenue bonds, dedicated tax fund bonds and potentially leveraging the payroll mobility tax for a new credit. To the extent funding is not provided by city, state and federal partners, additionally leveraging of the MTA's credits cannot be ruled out in the event that the MTA does not scale back certain, non-core elements of the transit and commuter system. Fitch will monitor the carefully arranged efforts and negotiations between partners to meet the ultimate funding 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

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

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=898274

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Contacts

Fitch Ratings
Primary Analyst
Chad Lewis
Senior Director
+1-212-908-0886
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY, 10004
or
Secondary Analyst
Emma Griffith
Director
+1-212-908-9124
or
Committee Chairperson
Greg Remec
Senior Director
+1-312-606-2339
or
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Chad Lewis
Senior Director
+1-212-908-0886
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY, 10004
or
Secondary Analyst
Emma Griffith
Director
+1-212-908-9124
or
Committee Chairperson
Greg Remec
Senior Director
+1-312-606-2339
or
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com