Fitch Rates Metropolitan Trans Auth (NY) Transportation Revs 'A'

NEW YORK--()--Fitch Ratings has assigned an 'A' rating to the Metropolitan Transportation Authority (MTA), New York's approximately $500 million transportation revenue refunding bonds series 2016B. The Rating Outlook is Stable on the bonds.

KEY RATING DRIVERS

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).

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 8.14 million daily subway and bus riders and Metro-North Railroad and Long Island Rail Road (LIRR) carrying another 588,000 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's 2015 - 2019 $26.6 billion capital program (Transit and Commuter Programs) ($29.4 billion including MTA Bridges and Tunnels) was approved on Oct. 28, 2015 by the MTA board and was approved by the Capital Program Review Board's (CPRB) on May 23, 2016. The program is fully funded with commitments from the MTA, Federal Sources, the State of New York and New York City. Sources for the program include $5.9 in MTA bonds and $3 billion from PAYGO, asset sales/leases and other MTA sources. Federal funds account for $6.9 billion while New York State has committed to provide $8.3 billion, and New York City has committed to provide $2.5 billion.

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 MTA.

RATING SENSITIVITIES

Operating Efficiencies: 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;

Additional MTA Bonds for Capital: Significant cost overruns or delays in the capital program's mega-projects that lead to additional borrowing or deferral of core capital projects;

Lower Operating Subsidies: Receipts in dedicated tax subsidies that are measurably below forecast levels could which could pressure the MTA's financial flexibility.

Positive:

Material Increase in Financial Flexibility: Ability to meet near-term operating expense assumptions and efficiencies and increasing overall financial flexibility.

SUMMARY OF CREDIT

The MTA expects to issue $500 million of series 2016B transportation revenue refunding bonds to refinance certain outstanding indebtedness issued by the MTA for transit and commuter projects.

The MTA's February Financial Plan (2016 Adopted Budget 2016-2019) incorporates policy actions previously described as 'below the line' in the November Plan and related technical adjustments. Overall, the effect of the technical adjustments from the November Plan has little impact in FY 2016 cash balance ($121 million from $123 million), while FY 2017 and FY 2018 were lowered to $3 million from $36 million and $55 million, respectively, while the FY 2019 net cash deficit was increased to $257 million from $182 million.

For additional information on the MTA see Fitch's press release 'Fitch Rates Metropolitan Trans Auth (NY) Transportation Rev BANs 'F1'' dated Nov. 23, 2015' and available at www.fitchratings.com.

Relevant Committee Date: June 9, 2015

Additional information is available on www.fitchratings.com.

Applicable Criteria

Rating Criteria for Infrastructure and Project Finance (pub. 28 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870967

U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005980

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Chad Lewis
Senior Director
+1-212-908-0886
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tanya Langman
Director
+1-212-908-0716
or
Committee Chairperson
Scott Zuchorski
Senior Director
+1-212-908-0659
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Chad Lewis
Senior Director
+1-212-908-0886
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Tanya Langman
Director
+1-212-908-0716
or
Committee Chairperson
Scott Zuchorski
Senior Director
+1-212-908-0659
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com