Fitch Rates Metropolitan Trans Auth (NY) Transportation Revs 'A'
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 including fare revenues, surplus revenues from the Triborough Bridge and Tunnel Authority and operating subsidies from state and local governmental entities in the form of certain dedicated taxes, regional taxes and other fees, 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.
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.
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 approximately $600 million of series 2016D transportation revenue refunding bonds to refinance certain outstanding indebtedness issued by MTA to provide interim financing of transit and commuter projects.
The MTA's July Financial Plan (MTA 2017 Preliminary Budget - 2017-2019) includes the 2016 Mid-Year Forecast, 2017 Preliminary Budget and 2017-2020 Financial plan incorporating the MTA's baseline plan and adjustments including fare/toll increases, MTA initiatives, policy actions and MTA re-estimates. Overall, the effect is marginally positive in the near term with slightly larger projected cash balances in FY 2016-18 compared to the cash balances projected in the February Financial plan and a small cash balance in FY 2019 as compared to a net negative cash balance. FY 2020 projects a sizeable negative cash balance of $371 million, the February Financial Plan did not have a FY 2020 projection.
Driving the better forecasted results in the near term are better FY 2015 financial results, lower debt service expenses, lower energy costs, higher toll revenues and higher operating revenues. Partially offsetting the positive results are higher health and welfare benefits, higher pension estimates and lower farebox revenue. Nevertheless, the positive trends are still net favourable to the MA by approximately $690 million through 2019.
The 2017-2020 Financial Plan is predicated on a number of assumptions including projected fare and toll increases in 2017 and 2019, cost savings initiatives, savings targets, projected debt service savings and other investments in customer service, maintenance and operations, service and service support and safety and security initiatives through the 2020 horizon aimed at significant cost savings. The MTA faces a number of challenges to implementing all of the proposals in the financial plan as well as external factors potentially impacting the MTA's revenues and expense profile such as expiring labor contracts, ongoing costs associated with workers' compensation, claims and other health care as well as risk to open road tolling initiatives, general economic conditions and potentially higher interest rates. To the extent that some of the initiatives are not achieved, forecasted results may not be achieved.