OREANDA-NEWS. Fitch Ratings affirms the 'AA' rating on the following Dallas Area Rapid Transit, Texas' (DART) outstanding debt:

--Approximately $256.9 million senior lien sales tax revenue refunding bonds, series 2007;
--Approximately $588.4 million senior lien sales tax revenue bonds, series 2008.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a senior lien on pledged revenues, which consist of gross receipts from the levy and collection of the 1% sales tax within the system's service area, farebox revenues, and investment income from the debt service account.

KEY RATING DRIVERS

LARGE AND DIVERSE ECONOMY: Population and employment trends in the Dallas-Fort Worth metropolitan statistical area (MSA) reflect continued expansion. Above-average wealth indices and diverse employment opportunities lend economic stability.

STRONG DEBT SERVICE COVERAGE: There is ample coverage by fiscal 2015 pledged 1% sales tax of 2.4x senior lien debt service and 2.3x maximum annual debt service (MADS) on senior lien bonds without the federal subsidies on DART's Build America Bonds (BABs) issues. DART has realized a continuous, five-year period of solid annual sales tax gains since the recession.

HIGH BUT MODERATING DEBT LOAD: DART issued over $3 billion of sales tax bonds over 2007-2010 to finance the large-scale expansion of its light rail system. Debt service costs are projected to account for nearly 30% of combined operating expenses and debt service in fiscal 2016 before consideration of the BABs federal subsidies. However, senior lien debt service is scheduled to peak in fiscal 2017 and planned debt issuance over the near term is moderate.

MODEST MARGINS PROJECTED: System operating revenues, including sales taxes, are projected to cover operating expenses and debt service by a slightly improved margin over the next five years. Substantial unrestricted cash reserves provide adequate flexibility in the event moderate projected sales tax growth fails to materialize.

SYSTEM RELIANCE ON SALES TAX REVENUES: DART is dependent on sales taxes for the majority of its resources, and has limited ability to raise revenues given the low farebox recovery ratio of 18% in 2014.

RATING SENSITIVITIES
MAINTENANCE OF FISCAL POSITION & PRACTICES: Management's ability to maintain structurally balanced operations, along with sound reserves and coverage levels is an important rating determinant and has been attributable in part to Dallas Area Rapid Transit's strong fiscal and planning practices. Fitch expects continuation of these practices will also allow for a measured approach to the system's long-range capital and debt plans given ridership demand remains relatively low.

CREDIT PROFILE
WIDE SERVICE AREA IN DFW MSA
DART is a sub-regional transportation authority that provides bus, light rail, commuter rail, paratransit and general mobility services to a 700 square mile area which includes the city of Dallas and surrounding communities, totaling only a portion of the MSA. The service area incorporates 11 cities and two towns, all of which are voter-approved participating municipalities. Operations are primarily supported by the 1% sales tax levied within the service area net of debt service on DART bonds. Fare revenues have increased somewhat, but historically reflect recovery of only a modest portion of operating costs (18% in fiscal 2014).

STRONG REGIONAL ECONOMY
The area economy has grown steadily since the recession as shown by sales tax growth and expanding employment, and continues to outperform the nation in terms of population, employment, and income growth. Jobs within the MSA grew by approximately 3% in 2014 and 2% in 2015. Unemployment edged down to 4.0% in November 2015 from 4.4% a year ago. The November 2015 unemployment rate for the MSA is slightly below the state and nation at 4.5% and 4.8%, respectively. Wealth indices generally exceed the state and national norms.

SOLID DEBT SERVICE COVERAGE
Senior lien debt service coverage remains ample at 2.3x MADS before taking into account federal subsidies on DART's two issues of BABs. This coverage level excludes any long-term amortization of commercial paper. Debt levels have grown rapidly since fiscal 2007, as DART issued $3.3 billion of sales tax bonds to finance its extensive capital program. Senior lien debt service costs, net of federal BABs subsidies, will increase by a relatively modest $2 million in fiscal 2017 to reach MADS as presently scheduled.

MANAGEABLE DEBT PLANS
Management indicates relatively moderate near-term debt plans that have been pushed back slightly from original projections of up to $500 million in the current five-year forecast. Future issuances may consist of additional senior lien sales tax revenue bonds or TIFIA (U.S. Department of Transportation) financings. Fitch expects gross sales tax revenues to cover annual debt service at 2x going forward based on DART's established financial policy floor and as forecast in the 2016 20-year financial plan.

An additional bonds test of 2x MADS based on either historical or prospective sales tax revenues provides further bondholder security, although the critical need for sales taxes to fund operations also guards against over-issuance. Subordinate obligations on the pledged revenues consist of commercial paper that has historically been fixed into senior-lien long-term debt. DART presently uses a self-liquidity commercial paper program to meet interim capital funding requirements, up to a maximum of $200 million. The program is supported by DART's substantial liquidity, which totaled approximately $788 million at Sept. 30, 2014.

TREND OF STRONG SALES TAX GAINS
Sales tax collections continue to exhibit strong, steady growth since the recession. Most recently, sales tax revenues grew by roughly 7% in fiscal 2014; this revenue performance is projected to be duplicated in fiscal 2015, totaling nearly $519 million on an unaudited basis. Sales taxes have been sensitive to economic cycles. However, the most recent recessionary decline of 9% was significantly smaller than the 16% drop in collections experienced during the 2001 recession, which Fitch believes may signal a more resilient tax base. Fitch believes management's projections for moderate growth (3%-5%) in annual sales tax revenue are reasonable over the near term given the currently strong economic climate, but remain balanced against longer-term sales tax trends that reflect relatively modest growth. Average annual sales tax growth since fiscal 2000 has improved, but remains modest at 2.2% annually.

STRUCTURALLY BALANCED OPERATIONS
The effects of recessionary revenue shortfalls over fiscals 2009-2010 were significant to DART because sales taxes make up more than 70% of DART operating revenue. The shortfalls were largely addressed by management with staffing and service cut-backs as well as adjustments to the long-range business plan to bring future spending in line with reduced expectations for sales tax growth. Future capital plans were also scaled down.

DART subsequently regained structural operating balance - defined as achieving operating revenue coverage of at least 1x operating and capital expenses per DART's financial policies -beginning in fiscal 2013. Operational spending in the current fiscal year (fiscal 2016) is estimated at roughly $495 million, a 4% increase from the prior year's budget. In comparison, sales tax revenue is forecast at $542 million or approximately 5% above the fiscal 2015 actual. Maintaining structural balance over the near term (five years) and over DART's extended forecast period (20 years) will hinge largely on both continued sales tax revenue growth and management's ability to successfully manage expenditures.

Fitch believes DART's revenue assumptions are reasonable given the area's strong economic climate, although the effects of any future sales tax revenue shortfalls on the system's finances will likely be more pronounced than in the past; the larger impact would be attributable to a maturing system and fairly modest revenue-raising options available to DART.

In Fitch's stress scenario, an extended period of flat sales tax revenues would pressure DART's finances given the largely fixed operations and debt service costs. Nonetheless, DART's financial flexibility is enhanced by hefty cash reserves, which total well over one year of operating expenses. As a last resort, DART maintains the option to reduce service levels, if necessary.

FUTURE LIGHT RAIL EXTENSIONS
Current and near-term light rail projects include the Blue Line rail extension (fully funded, completion scheduled by late 2016), a four-mile segment that will connect the light rail system to the University of North Texas-Dallas Campus. Another planned extension project (the Orange Line to Union Station) is designed to increase the core capacity of DART's service area.

The light rail system has frequently spurred development along its routes in various member cities. Management indicates there is additional interest from certain member cities to expand infill stations (projects fully funded by external contributions), which may serve to boost DART's ridership in the intermediate- to long-term.

DART's phased approach to its capital program affords flexibility to adjust project schedules with the availability of funding. DART's $1.6 billion capital plan through fiscal 2020 is up by about $214 million or roughly 15% from the prior year's plan, with slightly more than half of the increase due to unspent fiscal 2015 capital funds rolling forward. Larger projects slated for the next few years include completion of the aforementioned light rail extensions.

Capital spending projected in the 20-year financial forecast has also increased, primarily due to the roughly $3 billion now factored in at the long end of the program for DART's share of a planned commuter rail line (the Cotton Belt corridor) in the northern part of the DART service area. Fitch views this sizeable increase in capital spending with some caution, but also recognizes management's historical adherence to prudent fiscal policies and best practices in addition to the proven ability to adequately phase and fund a large capital program within its revenue constraints.