Fitch Rates MTA, New York's Trans Rev Bonds 'A'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an underlying 'A' rating to the Metropolitan Transportation Authority's, NY (MTA, or the authority) $210.5 million transportation revenue variable-rate refunding bonds (TRAINS - Transportation Auction Interest Rate Securities) series 2002B. The bonds were not assigned an underlying rating by Fitch on original issuance. The bonds are insured by FSA, whose insurer financial strength is rated 'AAA', with a Negative Outlook, by Fitch. Fitch also affirms its underlying 'A' rating on $11.9 billion in outstanding transportation revenue bonds. The Rating Outlook is Stable.

The transportation revenue bonds are primarily secured by operating receipts and operating subsidies. They include 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 'A' rating reflects the gross lien on pledged revenues, the essentiality and performance of the transit services supported by pledged revenues, the importance of the authority's transit network to the economy of the New York region, and a track record of prudent financial management.

The MTA is facing extreme financial pressure as a result of near- to medium-term operating and capital hurdles given the rapid decline in operating subsidies, primarily mortgage recording tax revenues and other regional tax sources due to the downturn in regional housing prices and the current national and regional economic downturn. The MTA ended 2007 with a cash balance of $495 million and is expected to end 2008 with a balance of $268 million including prior year balances and other gap-closing measures. The MTA's 2009-2012 financial plan projects net deficits prior to gap-closing programs of $1.2 billion in 2009 growing to $2.7 billion in 2012 before gap-closing measures and prior-year carry-overs. These gaps are of concern as the fiscal and operational stability of the system is important to the rating.

Deterioration in the real estate market has reduced estimated real estate tax revenues in the MTA's November 2009-2012 finance plan by an additional $76 million from the July 2009-2012 finance plan for 2008 to $970 million and $66 million for 2009 to $881 million, from $1581 million in 2007, representing 39% and 44% declines, respectively. Additionally, state taxes are also forecast to decline further by $175 million and $133 million for 2009 and 2010, respectively, as projected in the MTA's November 2009-2012 finance plan.

In response to sizeable forecasted deficits in the 2009-2012 financial plan, the MTA has taken proactive steps to increase fares and tolls above previously anticipated levels, propose internal cost-cutting measures and initiate service reductions on currently underutilized routes. While Fitch views these actions favorably to counteract current financial pressure, heightened political risks associated with the proposed fare and toll increases as well as service reductions will be challenging given the current economic environment. Furthermore, loss of ridership and traffic due to city and regional job losses could have an impact on bridge and tunnel operating revenues greater than anticipated.

Effective June 1, 2009, the MTA anticipates raising fares and toll yields by an annualized 23%, 15% above the 8% yield proposed in the previous plan, which would have been effective July 1, 2009. Furthermore, the plan assumes that effective Jan. 1, 2011, the MTA would continue biennial fare/toll increases to increase yields by 5%. To the extent the MTA is unable to implement the proposed fare and toll increases significant additional service and non-service related expense reductions will be needed to close its projected deficits along with meaningful adjustments to the MTA's capital program spending.

In June 2008 the Ravitch Commission was formed to develop strategies to fund MTA projects and operating needs, and the report produced by the Commission includes various recommendations intended to fund such projects and operations. Specifically, the report outlines a new regional mobility tax, a new MTA Capital Finance Authority to manage the mobility tax, and cashless tolling on the East River and Harlem Bridges. Additionally, the report outlines regular inflation-linked fare and toll increases without public hearings, changes to the board to promote more efficiencies and to project execution and development, and to improving the bus service system-wide. While the primary recommendations of the report will positively assist the MTA by providing long-term stability, legislative changes will be necessary to implement a number of these recommendations and political opposition will be likely. Nevertheless, the MTA faces endless capital needs and operating challenges, so timely action will be absolutely necessary to maintain adequate levels of service, safety and state of good repair on existing facilities, as well as current and planned capital expansion projects.

The MTA is responsible for North America's largest transit network, serving 2.6 billion riders annually. The authority's network is essential to the economic well-being of the region, handling 80% of all daily trips to Manhattan's business district.

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