NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A' rating to the Metropolitan Transportation Authority (MTA), New York's $500 million transportation revenue bonds series 2015 consisting of $400 million subseries 2015A-1 (fixed rate) and $100 million subseries 2015A-2 (SIFMA Floating Rate Tender Notes). The Rating Outlook is Stable.
Additionally, Fitch has affirmed 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: While the MTA's 2015-19 Proposed $29 billion Capital Program (Transit and Commuter Programs) was vetoed by the Capital Programs Review Board (CPRB), the proposed Transit and Commuter Capital Program assumes around $4 billion in MTA related debt. The proposed plan has a roughly $15.2 billion gap in funding which is expected to be funded through a combination of additional federal, state and/or local resources or potentially additional MTA debt. The proposed TBTA Capital Program (not subject to CPRB approval) is estimated to be $3.1 billion with approximately $2.3 billion funded from TBTA bonds. The MTA has historically faced the constant challenge of delicately balancing the large rehabilitation needs of the system and expansion projects 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 2015A bonds are being issued to finance transit and commuter projects.
The MTA's 2015 - 2018 November Financial Plan (Final Proposed Budget) as compared to the July Financial Plan forecasts a higher cash balance for fiscal year (FY) 2015 ($64 million vs $10 million) but lower forecasted balances in 2016 ($102 million vs $146 million) and 2017 ($1 million vs $113 million). FY 2018, similar to prior outer-year projections, anticipates a negative cash position of approximately $322 million, up from a negative cash position of $262 million from the July Plan.
The changes in 2015 - 2018 reflect positive results from higher fare and tolls, higher real estate transaction tax receipts, lower energy expenses and higher petroleum business tax (PBT) revenue. The positive results were ultimately negatively offset by lower MTA Aid, higher overtime, higher health and welfare expenses, higher debt service costs, increased safety investments, increased service adjustments, additional operational and maintenance needs and new IT investments. The November plan, as with prior plans, is predicated on 4% fare and toll increases in 2015 and 2017.
Risks to the November plan include the ability to achieve savings from identified operating efficiencies, potential volatility in some operating subsides (real estate related dedicated tax sources), greater than expected elasticity from future proposed fare and toll increases and uncertainties associated with the final completion and operating costs of the East Side Access and 2nd Ave Subway projects. To the extent that any of these elements fail to reach current expectations, projected year end cash balances may be materially different 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.
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. 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.
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 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 Program 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 to fill the approximately $15.2 billion funding gap, 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=963235
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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.