Approximately $16.8 billion outstanding transportation revenue bonds (before current offering but excluding CP)
New York, January 08, 2013 --
Moody's Rating
Issue: Transportation Revenue Bonds, Series 2013A; Rating:
A2; Sale Amount: $500,000,000; Expected
Sale Date: 01-15-2013; Rating Description:
Revenue: Government Enterprise
Opinion
Moody's Investors Service has assigned an A2 rating with a stable outlook
to the $500 million New York Metropolitan Transportation Authority
(MTA) Transportation Revenue Bonds, Series 2013A. The bonds
will be sold the week of January 14 and proceeds will be used to finance
transit and commuter projects.
SUMMARY RATING RATIONALE
The A2 long term rating incorporates the diversified revenue base that
supports the transportation revenue bonds (TRBs); sound overall financial
management with adequate flexibility to manage a complex portfolio of
variable rate debt and swaps; and strong demand for the essential
services the MTA provides to New York City and the seven surrounding New
York metropolitan counties.
The MTA faces a challenging environment as it manages its operations and
a substantial capital plan in the midst of an economy still in recovery,
labor negotiations, and a challenge to a significant revenue source,
the payroll mobility tax (PMT). While ridership and associated
revenues are gradually increasing, dedicated tax receipts are still
below pre-recession peak levels. The MTA is keenly focused
on reducing operating costs and efforts thus far have produced significant
recurring savings. However, a large portion of the MTA's
costs are fixed for labor and benefits, and a significant risk in
the financial plan is the assumption that labor settlements will include
three years of "net-zero" wage growth, including
2012. Failure to achieve these savings would likely narrow the
MTA's already tight operations, making it more difficult to
absorb the planned debt issuance for capital projects at a time when the
pace of economic recovery remains weak and revenue-raising options
are slim beyond planned fare and toll increases.
The MTA and the State of New York have appealed a recent lower court ruling
by a justice of the Supreme Court, Nassau County, that declared
unconstitutional the payroll mobility tax (PMT) legislation, a substantial,
relatively new resource implemented in 2009. Four similar legal
challenges to the PMT previously were dismissed by other state court justices,
in rulings that upheld the tax's constitutionality. The timing
and outcome of the appeals by MTA and the state are uncertain.
If the appeal is lost, the MTA's TRB credit would likely be
placed on review for possible downgrade.
Hurricane Sandy caused the worst damage ever recorded in the 108 year
history of the combined transit, commuter, bridge, and
tunnel system. Preliminary cost estimates total approximately $4.8
billion in infrastructure damage and $268 million of lost revenue
and increased operating costs. The transit system suffered the
majority of the infrastructure damage; capital repairs for flooded
subway tunnels, and damage to stations and equipment account for
about two thirds of storm-related costs.
Assessment of the hurricane damage will take time and the cost will be
substantial. The MTA received substantial amounts of federal rebuilding
aid following the events of 9/11 and we expect that similar support will
be made available for repairs of the latest damage. This should
partially offset the need to issue more debt although increased leveraging
of the MTA's debt is possible, including the TRBs; Triborough
Bridge and Tunnel Authority Bonds (TBTA, senior lien bonds rated
Aa3 and subordinate lien bonds rated A1) and the Dedicated Tax Fund Bonds
(DTF, rated Aa3). Moody's will continue to monitor
the potential impact of the clean-up and repair costs on the MTA's
operating and debt costs.
STRENGTHS:
*Strong demand for an essential transportation network
*Diversified revenue stream including dedicated taxes, fares,
tolls, TBTA operating surplus, and governmental subsidies
*Adequate flexibility to manage a complex debt portfolio including
variable rate demand bonds and swaps
*System's resilience following major shocks such as 2001 World Trade
Center attacks, 2002 recession, 2005 TWU Local 100 strike,
and 2008-2009 recession
*Significant investment over three decades in normal replacement and
state of good repair maintenance and system expansion
*Existence of five-year capital plan
CHALLENGES:
*Litigation regarding a sizeable resource, the PMT
*Recession has exerted downward pressure on dedicated revenues.
*Complex variable rate debt and swap portfolio
*High fixed costs for labor related expenses, multiple collective
bargaining agreements, and assumed labor savings that have not yet
been achieved
*Sizeable capital plan spending needs will result in increased leveraging
of revenues for debt issuance
*Multi-level government involvement in the MTA's financial
and capital planning creates complex political environment and adds to
management challenges
Outlook
The outlook for the transportation revenue bonds is stable reflecting
Moody's expectation that the MTA will take actions, as it has in
the past, to continue to balance its operations while absorbing
its debt load, which has increased in recent years. There
is the risk of continuing financial strain posed by several areas of uncertainty.
These include: 1) the outcome of labor settlements; 2) resolution
of the PMT litigation; 3) economic weakness that would negatively
affect economically sensitive revenues dedicated to the MTA as well as
system utilization that would hurt fare and toll revenues; and 4)
the MTA's modest liquidity relative to its variable rate and swap
portfolio.
WHAT COULD MAKE THE RATING GO UP?
• Significantly reduced or eliminated funding gaps in out-years
of financial plans
• Sustained revenue improvement with reduced volatility
• Less reliance on debt to fund capital program
• Reliability of non-fare/toll revenues supporting the MTA
WHAT COULD MAKE THE RATING GO DOWN?
• Loss of all or some of the payroll mobility tax without an immediate
replacement of revenues
• Inability of the MTA to achieve savings through labor settlements
• Emergence of budget gaps larger than currently expected
• Persistent delays in state appropriation of MTA-dedicated
revenues or significant weakening of tax-supported subsidies
• Significantly strained liquidity due to widespread puts of variable
rate debt; inability to refinance variable rate debt
• Increased use of debt, beyond current plans
• Increase in deferred maintenance
The principal methodology used in this rating was Mass Transit published
in June 2000. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Please see the credit ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Nicole Johnson
Senior Vice President
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Emily Raimes
VP - Senior Credit Officer
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns A2 rating to Metropolitan Transportation Authority's (NY) $500 million Transportation Revenue Bonds, Series 2013A; outlook is stable
