(The following statement was released by the rating agency)
NEW YORK, May 05 (Fitch) Fitch Ratings has assigned an 'A' rating to the
Metropolitan Transportation Authority (MTA), New York's $967.1 million Railroad
Rehabilitation Infrastructure Financing Loan series 2015X. The Rating Outlook is
Stable. The RRIF loan is a parity obligation with the MTA's outstanding
transportation revenue bonds. Fitch has affirmed the 'A' rating on
approximately $20.7 billion (excluding commercial paper CP ) in outstanding MTA
transportation revenue 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 8.05
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 2015-2019 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 $3.9 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;
--Significant cost overruns or delays in the capital program's mega-projects
that lead to additional borrowing or deferral of core capital projects;
--Receipts in dedicated tax subsidies that are measurably below forecast 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 in the near term.
TRANSACTION SUMMARY
The 2015X RRIF loan proceeds will finance certain allowable costs (defined in
the financing documents under the Railroad Revitalization and Regulatory Reform
Act of 1976) and incurred by the MTA in connection with certain capital
projects, including its Positive Train Control Project which will install
Positive Train Control on The Long Island Rail Road Company and Metro-North
Commuter Railroad Company tracks where required by applicable regulations.
The loan is expected to be fully drawn by 2018 and will have a level debt
service repayment schedule over a 20 year period. Similar to the Transportation
Infrastructure Finance and Innovation Act (TIFIA) loan program, the RRIF loan
program has certain conditions precedent to receive loan proceed disbursements.
These provisions are primarily administrative and are not viewed material to the
MTA's ability to draw on the loan. The interest rate on the loan is expected to
be fixed at 2.38%. The loan will be subject to certain penalty rates, as
described in the financing agreement, including a ratings downgrade event.
The MTA's February Financial Plan (2015 Adopted Budget 2015-2018) incorporates
policy actions previously described as 'below the line' in the November Plan and
related technical adjustments. Technical adjustments are generally related to
revenues associated with the implementation of fare and toll increases that were
effective on March 22, 2015, the release of the 2014 general reserve fund to
reduce pension liabilities, reserving for retroactive wage payments, safety and
service investments, future toll and fare increases and future MTA efficiencies.
Overall, the effect of the technical adjustments from the November Plan slightly
lowers the projected fiscal year (FY) 2015 cash balance ($47 million from $64
million), FY2016 is generally unchanged at $102 million positive cash balance,
and FY2017 projects a slightly higher cash position ($10 million vs. $1
million). The FY2018 deficit is slightly lower at $305 million as compared to
$322 million in November. The MTA's preliminary 2014 net cash balance was $309
million including a $314 million carryover from 2013. This result was $151
million higher than the final estimate in the February plan and will be
reflected in the July financial plan.
Risks to the February Plan/Adopted Budget include the ability to achieve savings
from identified operating efficiencies, potential volatility in some operating
subsidies (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 these 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 CPRB. In addition, 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 project 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 pay-go. 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 demonstrated by the 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, additional
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.
The transportation revenue bonds and RRIF loan 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.
Contact:
Primary Analyst
Chad Lewis
Senior Director
+1-212-908-0886
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
Secondary Analyst
Tanya Langman
Director
+1-212-908-0716
Committee Chairperson
Greg Remec
Senior Director
+1-312-606-2339
Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email:
[email protected].
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
Tax-Supported Rating Criteria
http://www.fitchratings.com
Additional Disclosure
Solicitation Status
http://www.fitchratings.com
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM. 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.
