Fitch Ratings has assigned an 'A+' underlying rating to the Metropolitan Transportation Authority's, New York (MTA, or the authority) $900,000,000 transportation revenue bond anticipation notes, series CP-2 Credit Enhanced (bank bonds) consisting of:
--$100 million subseries A;
--$250 million subseries B;
--$350 million subseries C;
--$200 million subseries D.
Fitch also affirms the 'A+' rating on $13 billion in outstanding transportation revenue bonds.
The Rating Outlook is Negative for all bonds.
Fitch has assigned short-term ratings based on four separate letters of credit and reimbursement agreements in connection with the aforementioned CP-2 program. For more information, see 'Fitch Rates Metropolitan Transportation Auth (NY) $900MM Trans Rev BANs, Series CP-2, 'F1+' dated Sept. 8, 2010.
RATING RATIONALE:
The 'A+' rating on the transportation revenue bonds 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) as well as some future leveraging on the transportation revenue credit for capital. Given the near-term pressure the MTA is facing, it will need to delicately balance funding for capital projects while maintaining financial flexibility for transit and commuter rail service operations.
The Negative Rating Outlook reflects the continued uncertainty surrounding the near-term performance of the payroll mobility tax (PMT) and sustained declines in the regional mortgage recording tax revenues, New York City urban taxes and other dedicated tax sources that support operations and the capital needs of the system. Additionally, the Negative Outlook reflects the financial pressures and near-term projected deficits despite forecasted fare and toll increases in 2011 and 2013, service, labor, and expense reductions, as well as efficiency measures. The MTA is also vulnerable to state actions that could delay or reduce state aid and other funding subsidies that support operations.
WHAT MAY TRIGGER A DOWNGRADE?
--Further deterioration in dedicated tax subsidies.
Higher than anticipated expense growth.
--Significant cost overruns or delays in the capital program's mega-projects that would require additional funding.
--Additional service cuts or deferral of core capital projects that result in deterioration of key transportation services of the system.
SECURITY:
The transportation revenue bonds are primarily secured by operating receipts and operating 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.
CREDIT SUMMARY:
Year-to-date (YTD) through August 2010, real estate tax receipts were $13.9 million or 4.5% less than the updated forecast released in early 2010 while PMT collections were $35.8 million or 3.5% better than forecast. However, compared to the February adopted budget, the PMT receipts were $278 million or 26.9% below budget. Additionally, the MTA's state aid was $55.5 million less than forecast (23.5% unfavorable) and management expects a reduction in dedicated taxes and subsidies due to funding cuts by New York State of nearly $17 million in 2010. Fitch is closely monitoring the state's financial position, which has been strained, as it relates to the MTA (for more information related to the state credit, see the Fitch press release dated Sept. 17, 2010).
Partially mitigating Fitch's concerns are initial signs of stabilizing passenger and toll revenues (YTD through August 2010 passenger revenue was slightly unfavorable to budget by 0.4% while toll revenue performed better at 0.4%) as well as expense containment measures (YTD expenses were 1.2% less than budget), which will partially offset some of the lower tax revenues. In the event economic pressures affecting the dedicated operating subsidies continue in the near term and positive YTD trends in operating revenues and expenses do not continue, financial margins and flexibility are likely to become substantially constrained. Despite significant measures to close the near-tem operating deficits from 2011-2014, primarily through fare and toll increases in 2011 and 2013 and significant expense reductions and efficiencies, the financial plan still projects operating deficits in 2012-2014, albeit significantly smaller. Additional resources from the state are much less likely, meaning the MTA will need to address funding gaps on its own through a combination of fare and toll increases beyond those already planned, larger service cuts and/or controlled spending and cost efficiencies. To the extent that pressure on the MTA's revenue streams continues and/or the MTA begins to defer essential maintenance, the rating could be pressured.
Primary risks for the MTA include the ongoing significant capital and operating needs in the medium-to-long term, the vulnerability to fiscal stress during economic downturns, lower than anticipated revenues from certain operating subsidies, and the continued reliance on debt financings to help fund capital needs. Additionally, the MTA's long-term needs for growing levels of public subsidy and/or new operating and capital funding solutions as well as periodic rate increases for transit and Triborough Bridge and Tunnel Authority (TBTA) crossings (general revenue bonds rated 'AA' and subordinate revenue bonds rated 'AA-' with a Negative Outlook by Fitch; see Fitch press release dated Sept. 3, 2009), exposes the MTA to political risk. In addition, the MTA relies on sizeable transfers from TBTA to support its transit and commuter rail services; however, TBTA has an increasing dependence on sustained revenue growth which could pressure its ability to fund these transfers.
The MTA's 2010-2014 $23.8 billion capital program was approved in April. The program was revised downward by $1.8 billion from the original proposed plan submitted to the MTA board in October 2009. The $1.8 billion reduction reflects a broad review of the original plan and incorporates various efficiencies in cost. The proposed program is comprised of approximately $18.1 billion in core projects on the existing system and $5.7 billion for expansion projects. Currently the first two years of the capital plan are fully funded. While some debt is expected to finance the capital program, years 2012-2014 have a significant funding gap and in the event that other resources are not available, additional leveraging cannot be ruled out which would likely place increasing pressure on the MTA's operating budget and its already significantly constrained financial flexibility. 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 maintaining a schedule for 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.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance', (Aug. 16, 2010).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548345
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Contacts:
Fitch Ratings
Primary Analyst:
Chad Lewis, +1-212-908-0886
Director
Fitch,
Inc.
One State Street Plaza
New York, NY, 10004
or
Secondary
Analyst:
Emari Wydick, +1-312-606-2308
Director
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Committee
Chairperson:
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Managing
Director
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Cindy Stoller, New York, +1-212-908-0526
cindy.stoller@fitchratings.com