Fitch Rates Metropolitan Transportation Authority (NY) Revs 'A'; Outlook Stable
Fitch Ratings has assigned an 'A' rating to the Metropolitan Transportation Authority, New York's (MTA) $600,000,000 transportation revenue bonds, series 2012C.
At this time, Fitch also affirms the 'A' rating on approximately $15.6 billion in outstanding MTA transportation revenue bonds. The Rating Outlook is Stable.
KEY RATING DRIVERS:
--Strategic Importance: The MTA transit network is essential to the economy of the New York region, and the MTA and its regional and federal partners have demonstrated the ability to produce solutions aimed at closing projected budget gaps and capital needs.
--Highly Constrained Financial Operations: The MTA's financial operations are constrained given the extremely large operating profile and significant retiree pension benefits. The MTA's operating subsidies are vulnerable to economic conditions. There is limited flexibility to offset revenue declines to cover operations of the system despite high debt service coverage ratios.
--Strong Security Pledge: The bonds are secured by a gross lien on a diverse stream of pledged revenues.
--Extremely Large Capital Needs: The MTA anticipates additional debt to fund the large 2010-2014 MTA Capital Programs. The MTA has the constant challenge of delicately balancing the large capital needs of the system 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 does not come to fruition.
WHAT MAY TRIGGER A RATING ACTION:
--Inability to achieve 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 would require additional funding;
--Additional service cuts or deferral of core capital projects that result in deterioration of key transportation services;
--Deterioration or limited growth in dedicated tax subsidies.
The transportation revenue bonds are primarily 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.
For the first two months of FY 2012, passenger and toll revenues are tracking slightly ahead of budget at 1.4%. Transit revenues are generally flat while Long Island Rail Road and Metro North Rail revenues are 5.1% and 4.0% higher, respectively, and bridge and tunnel revenues are 3.3%. Operating expenses are tracking approximately $43.2 million or 2.9% below budgeted expenses. Offsetting some of the positive net operating revenues are lower than anticipated revenues from New State Aid which are currently tracking $46.2 million or 8.5% lower than budget, partially due to payroll timing and lower wages and bonuses in the financial industry. Fitch will continue to monitor operating revenues and dedicated operating subsidies as well as the MTA's ability to implement and achieve various planned operating efficiencies.
The MTA's 2012-2015 February Financial Plan incorporates Board-approved actions and technical adjustments to the MTA's 2012-2015 November Financial Plan budgets and forecasts. Thus, the forecasts in the February Plan project similar financial performance through 2015. The plan includes a balanced budget in 2012 and a cash balance of $80 million in 2013. Respective projected deficits in 2014 and 2015 of $819 million and $1.3 billion, prior to fare and toll increases and planned operating efficiency initiatives, which result in projected deficits of $137 million and $204 million are generally unchanged. Projected deficits are driven primarily by retiree and employee healthcare and pension costs that are expected to grow well beyond inflationary rates. The MTA currently budgets these expenses to increase by $880 million by 2015 accounting for roughly 90% of the combined planned toll and fare increases in 2013 and 2015 (combined increases are projected to produce $966 million in 2015). While the MTA faces significant challenges, management has demonstrated the ability, and continues to implement cost reductions and numerous operating efficiencies to offset expense growth outside of their control.
Additional risks to the plan include the ability to achieve a favorable outcome from the current labor negotiations, meet expected growth in operating subsidies (dedicated tax sources), execute the currently proposed fare and toll increases in 2013 and 2015 and deliver on planned operating efficiencies. To the extent that any of these elements fail to reach current expectations, projected deficits could be significantly larger 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 close outer-year gaps.
The MTA's 2010-2014 capital program was recently amended and sent to the Capital Plan Review Board (CPRB) for approval. The CPRB approved the amended plan on March 27, 2012. The plan includes an approximate $1.6 billion reduction for the MTA portion and a $374 million reduction in the Triborough Bridge and Tunnel Authority (TBTA) projects. The $22.2 billion plan includes lower estimates for capital staff administration, improvements to productivity of work along the right-of-way and additional enhancements to project development and implementation. The plan is comprised of approximately $16.5 billion in core MTA projects and $5.7 billion for expansion projects. As with prior capital programs, long-term debt is expected to finance a significant portion of the 2010-2014 capital program and the MTA must delicately balance debt financing for the capital program and ongoing operations, which have historically been constrained. The TBTA portion is fully funded at $2.1 billion and is not subject to CPRB approval. Total capital spending for MTA and TBTA is $24.3 billion.
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.
For additional information related to the MTA, please see Fitch's press release 'Fitch Rates Metropolitan Transportation Authority (NY) Revs 'A'; Stable Outlook' dated Feb. 28, 2012 and 'Fitch Downgrades MTA's (NY) Revs to 'A'; Outlook Revised to Stable' dated Sept. 8, 2011, available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);
--'Tax Supported Rating Criteria' (Aug. 11, 2011).
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Tax-Supported Rating Criteria
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