Fitch Rates MTA (NY) Transportation Rev Bonds 'A' (Bank Bonds)
The Rating Outlook is Stable.
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 $26.1 billion Capital Program (Transit and Commuter Programs) ($29 billion including MTA Bridges and Tunnels) was approved on October 28th by the MTA board and is still subject to the Capital Programs Review Board's (CPRB) approval. Under a recent agreement between the MTA, the State of New York and New York City, the State and the City committed funds to close the projected Capital Program funding gap. New York State has committed to provide $8.3 billion, and New York City has committed to provide $2.5 billion in addition to $11.8 billion in MTA funds and $6.4 billion in federal funds.
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.
--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.
--Given small near-term operating surpluses but medium-term projected deficits positive rating movement is unlikely in the near term.
SUMMARY OF CREDIT
The series 2002G-1g (bank bonds) and subseries 2012G-2 (bank bonds) are being remarketed. For more information, please see Fitch's release 'Fitch to Revise L-T and Assign S-T Rtgs to MTA (NY) TRBs VRBs Ser 2002G-1g and 2012G-2' dated Oct. 26, 2015.
On Oct. 29, 2015 the MTA Board approved a revised $29 billion 2015 - 2019 Capital Program. The modified Capital Program, which includes a number of programed efficiencies and delivery methods, was reduced from the original $32 billion Program proposed a year ago. The program includes $21.6 billion in core investments in the MTA's subways, buses and railroads; $4.5 billion for the East Side Access, Penn Access and Second Avenue Subway projects; and $2.9 billion for MTA Bridges and Tunnels (not subject to CPRB approval).
Under the recently negotiated agreement between the MTA, New York State and New York City, the projected funding gap of approximately $11.8 billion was closed through commitments from New York State and New York City. New York State has committed to provide $8.3 billion, and New York City has committed to provide $2.5 billion in addition to $11.8 billion in MTA funds and $6.4 billion in federal funds.
In Fitch's opinion, the funding commitments by the State and the City further highlight the essentiality of the MTA's transportation system as a key element to the health and growth of the greater New York City economy. Fitch will continue to monitor the CPRB's approval process in the near-term.
For additional information on the MTA and details related to the MTA's short-term rating, see Fitch's press release 'Fitch Rates Metropolitan Trans Auth (NY) Transportation Rev BANs 'F1' dated June 09, 2015 and for more information on the MTA's long-term credit profile see 'Fitch Rates Metro Transportation Auth (NY) Railroad Rehabilitation Infrastructure Financing Loan 'A'' dated May 5, and 'Fitch Rates Metropolitan Transportation Auth (NY) Trans Rev Bonds 'A' dated Sept. 2, 2015 available at www.fitchratings.com