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Rating Action:

Moody's affirms 2 Broadway LLC's 2006 Certificates for MTA-leased facility at Baa3; outlook revised to stable

06 Apr 2021

$252 million of rated certificates affected

New York, April 06, 2021 -- Moody's Investors Service has affirmed the Baa3 rating on 2 Broadway LLC's Series 2006-A-1 Insured Amortizing Certificates, Series 2006-A-3 Uninsured Accreting Certificates & A-4 Insured Accreting Certificates, and Series 2006-A-2 Uninsured Accreting Certificates. The outlook on the certificates has been revised to stable from negative.

RATINGS RATIONALE

The affirmation of the Baa3 rating is based on the credit strength provided by the Metropolitan Transportation Authority's (MTA) (A3 stable; Transportation Revenue Bonds) contractual commitment and strong incentive to pay its rent on time and in full pursuant to a triple net lease on its headquarters offices located at 2 Broadway in New York City, an essential MTA asset. The rating is further supported by the first priority lien mortgage on the fee simple ownership in the land and an interest in the improvements, comprised of a 32-story, 1.58 million square foot office building. The rating also incorporates MTA's indirect connection to the debt financing, which is not a lease-to-own structure, as well as the highly-leveraged nature of these certificates. MTA's lease payments are an operating expense of the enterprise, and are therefore subordinate to TRB debt service.

RATING OUTLOOK

The stable outlook for the Baa3 certificates is based on the stable outlook on MTA's TRB bonds. In addition, Moody's expects that the MTA will continue to make full and timely rental payments sufficient to cover principal and interest payments on the certificates. While work-from-home arrangements and MTA's coronavirus-related revenue losses increase the risk of staffing reductions that reduce occupancy at 2 Broadway, to date MTA has added to its workforce at the headquarters office.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Upgrade of the MTA TRBs

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Downgrade of MTA's Transportation Revenue Bond rating

- Delay or reduction in rental payments such that revenues are insufficient to cover the debt service

LEGAL SECURITY

Debt service on the Certificates is payable from rent payments made by MTA and its agencies for its headquarters building located at 2 Broadway in lower Manhattan and comprised of a 32-story, 1.58 million square foot office building. The certificates are also secured by a first priority lien mortgage on the fee simple ownership in the parcel of land at 2 Broadway and an interest in the office building.

The 2006 Certificates represent a securitization of a portion of rental payments made to 2 Broadway LLC (the lessor) by 2 Broadway Ground Lease Trust (the lessee), a trust established by and for the benefit of the Metropolitan Transportation Authority (MTA), Triborough Bridge and Tunnel Authority (TBTA) and New York City Transit Authority (NYCTransit), pursuant to a lease for its headquarters building, dated July 1998 and expiring June 30, 2048. The Trust, as lessee, has entered into three subleases with MTA's subsidiary agencies. Under the subleases, the MTA's subsidiaries LIRR and MNCRC pay 21% of rentals, NYC Transit pays 68.7% and TBTA pays 10.3% of annual rentals. The lease establishes a schedule of monthly rental payments, currently $2.314 million in 2020, with 8% growth at four-year intervals. Rental payments provide just slightly more than one times coverage of principal and interest payments through final scheduled maturity in 2048. If the MTA elects to renew the lease for an additional 15 year term, rent is the greater of 95% of fair market or 8% over prior year's rent.

Rental payments are an operating expense, and not a debt obligation, of NYCTransit and the MTA's subsidiaries (LIRR and MNCRC). Rental payments paid by TBTA are a subordinated operating and maintenance expense of the TBTA. The MTA's obligation to make rental payments is also subordinate to payment of outstanding MTA debt service for the Transportation Revenue Bonds (A3 stable), which is secured by a gross pledge of revenues of the revenues of the NYCTA, LIRR and MNCRC.

The lessee may sublet any portion of the building, but remains fully obligated to the lease and if the tenant fails to make a rental payment, the lessee (MTA) must pay. Rental payments are not subject to abatement, offset or counterclaim, except in the event of condemnation. To offset the risk that the condemnation award is insufficient to pay amounts due on the fee mortgage, condemnation gap insurance is available in the amount of $200 million. In Moody's view the additional insurance sufficiently mitigates the relatively remote risk of condemnation, but nonetheless is an important factor in the rating. The Lessee is required to carry various insurance coverage, including property and casualty and general liability insurance, and all proceeds from such insurance is payable to the borrower and assigned for the repayment of the certificates.

PROFILE

2 Broadway LLC is a special purpose vehicle created for the sole purpose of entering into this lease and issuing these certificates. The equity members are 2 Broadway (Holding) LLC, a New York limited liability company (23.9%), 2 Broadway Acquisition Corp., Inc., a New York corporation (76.0%) and 2 Broadway Management, Inc., a New York corporation (0.1%). The certificates were issued to allow the project developer, acting as the independent director of the special purpose vehicle, to extract equity from the project. Pursuant to the LLC Agreement, the members covenant to prevent 2 Broadway LLC's filing for bankruptcy until no certificates are outstanding.

The MTA is a public benefit corporation of New York State, created by the New York State legislature in 1965. The MTA's governing board is appointed by the governor with advice and consent of the state Senate. The MTA is responsible for developing and implementing a unified mass transportation policy for the Metropolitan Transportation District which includes New York City and the surrounding Duchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester counties. In addition to these counties, MTA's service area also includes Fairfield and New Haven counties in CT. MTA operations are performed through nine different agencies, including the Triborough Bridge and Tunnel Authority, NY (Sr lien Aa3 negative). TBTA profits, after paying its own O&M and debt service, are transferred to MTA to subsidize transit, bus and commuter rail operations.

METHODOLOGY

The principal methodology used in these ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1260202. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Baye Larsen
Lead Analyst
State Ratings
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Nicholas Samuels
Additional Contact
State Ratings
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

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No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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