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Rating Action:

Moody's assigns A1 to Metropolitan Transportation Authority's (NY) Trans. Rev. Green Bonds, Ser. 2019A and a MIG 1 to Trans. Rev. Bond Anticipation Notes, Ser. 2019A; outlook negative

25 Jan 2019

New York, January 25, 2019 -- Moody's Investors Service has assigned an A1 rating to the Metropolitan Transportation Authority's (NY) $200 million Transportation Revenue Green Bonds, Subseries 2019A-1 (Climate Bond Certified Mandatory Tender Bonds), $162.8 million Transportation Revenue Green Bonds, Subseries 2019A-2 (Climate Bond Certified) and $100 million Transportation Revenue Green Bonds, Subseries 2019A-3 (Climate Bond Certified). Moody's has also assigned a MIG 1 rating to the $750 million Transportation Revenue Bond Anticipation Notes, Series 2019A. The bonds and notes may be split into additional subseries at the time of the sale, all of which will carry the A1 (bonds) or MIG 1 (notes) rating. The outlook on the long-term bonds is negative.

RATINGS RATIONALE

The A1 rating on MTA's Transportation Revenue Bonds is based on its essential service to a vast and economically robust service area, strong political and financial support from New York State (Aa1 stable) and New York City (Aa2 stable), and bondholder protection provided by strong governance and a gross pledge of the authority's diverse revenue sources. These strengths are balanced by MTA's narrow financial performance which will be challenging to resolve due to declining ridership, growing and relatively inflexible labor costs, high leverage, large capital needs and growing public pressure to improve service and limit fare increases.

The MIG 1 rating reflects the expectation that MTA will have strong market access at BAN maturity (February 3, 2020) given the MTA's satisfactory long-term credit quality (A1 negative), strong BAN takeout management plans, and the MTA's status as a sophisticated, frequent issuer of bonds and notes. Moreover, in the unlikely event of a market dislocation that impedes timely long-term debt issuance, we believe ample liquidity will be available to redeem the BANs.

On January 24, the MTA Board deferred their vote on fare and toll increases by one month to their next board meeting in February. The deferral will accommodate a new State Administrative Procedure Act that increases the comment period on toll increases to 60 days from 45, and allow additional discussion on fare increase strategies. MTA's 2019 budget assumes a fare and toll revenue increase that will yield a 4% fare revenue increase starting in early March 2019. With the deferral, implementation of the fare increase will likely be delayed by one month and reduce 2019 revenues by a manageable $26 million. Any further reduction or delay in the fare increase would widen MTA's structural budget gap in fiscal 2019 and weaken already-narrow finances.

RATING OUTLOOK

The outlook for the A1 Transportation Revenue Bond (TRB) rating is negative, based on lower-than-expected ridership and debt service coverage in 2018, reflecting rising competition that has decoupled ridership trends from economic growth. We expect that MTA's financial position will remain very narrow over the next 1 to 2 years as the state and city resolve operating and capital support for the system. While we expect MTA's supporting governments will take actions, as they have in the past, to balance the system's fiscal operations and capital program, it is unclear if solutions will be timely and fully fund MTA's substantial capital needs and growing budget gaps. Without a full funding solution, MTA could turn to additional fare increases or service cuts that would exacerbate negative ridership trends, and its financial position could decline further, resulting in increased leverage position and weakened credit quality.

FACTORS THAT COULD LEAD TO AN UPGRADE

- BANs: Not applicable

- Significant improvement in debt service coverage by net revenues and stronger level of liquidity

- Reduced labor-related financial and operating constraints and related fixed costs

- Significant reduction in current and projected debt leverage

- Dedication of meaningful additional resources that support MTA's operating and capital needs

FACTORS THAT COULD LEAD TO A DOWNGRADE

- BANs: Significant liquidity constraints, evidence of reduced market access, downgrade of the long-term rating below A2 stable

- Inability to structurally balance budgets and/or continued debt service coverage below a sum-sufficient level

- Evidence of heightened financial strain such as an increase in deferred maintenance and/or deferment of the Subway Action Plan and other agency plans

- Significant reduction in liquidity and budgetary reserves

- Greater than expected rise in leverage position, including debt, pensions and OPEB

- A 2020-2024 capital program that significantly increases its reliance on MTA debt, and/or shifts away from projects that address asset state of good repair

LEGAL SECURITY

The Subseries 2019A-1 bonds are put bonds with an expected mandatory tender scheduled on November 15, 2024. If MTA is unable to remarket the bonds, the interest rate will increase to 9% until the bonds are successfully remarketed. In this scenario, we expect the bonds would be remarketed quickly, and the total increased interest cost would be marginal. The expected mandatory tender provisions are described in the marketing documents; draft legal documents have not yet been made available. We expect them, when published, to reflect provisions described in the marketing documents.

TRB Security

The transportation revenue bonds (TRBs) are one of four primary credits that the MTA uses to finance its capital programs. The TRB bonds are special obligations of the MTA, payable on a gross basis from transit and commuter system revenues, certain state and local operating subsidies, dedicated taxes, and operating surpluses of the Triborough Bridge and Tunnel Authority, NY (TBTA) after operating and maintenance requirements and debt service payments on the TBTA's own debt (Aa3/stable senior lien). TRB financed projects must be approved by the state's Capital Program Review Board (CPRB).

The TRB rate covenant requires sum sufficient coverage by fares and subsidies of debt service and O&M. Only board approval is required to raise fares for the rate covenant. Unlike most other rated transit systems, there is no debt service reserve fund and no explicit additional bonds test for the TRBs, although the balanced budget requirement and CPRB approval provide solid leverage controls. Pledged revenues flow to a trustee held account and are set-aside monthly for debt service before being released for operations.

BAN Security

The BANs are payable from proceeds of the planned note or long-term bond issue, and the interest portion is further secured by a subordinate pledge of the transportation revenue bond pledged revenues.

BANs are not secured by available cash and investments, however MTA could use these resources to redeem the notes in the unlikely event of a market dislocation that impedes timely long-term debt issuance to redeem the BANs. Based on cash and unrestricted investments available on November 30, 2018, MTA's available resources would provide ample 4.0x coverage of the maturing BANs maturing plus other BANs and FRNs being remarketed in the two prior months.

BAN credit quality would be negatively affected if MTA's liquidity levels decline dramatically over the next two years and/or additional market access-dependent debt is issued that matures in the two months prior to a BAN maturity.

USE OF PROCEEDS

Bond proceeds will redeem the $500 million Series 2017C-1 bond anticipation notes maturing on February 15, 2019.

BAN proceeds will finance various transit and commuter capital projects and repay a recent $300 million draw on MTA's line of credit with JP Morgan that was made to fund capital projects.

PROFILE

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 stable). 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 the long-term ratings was Mass Transit Enterprises Methodology published in December 2017. The principal methodology used in the short-term ratings was US Bond Anticipation Notes published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

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 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.

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

The person who approved the long term credit ratings is Timothy Blake, Managing Director, Municipal Supported Products, Journalists 1 212 553 0376, Client Service 1 212 553 1653. The person who approved the short term credit ratings is Marcia Van Wagner, VP-Sr Credit Officer, State Ratings, Journalists 1 212 553 0376, Client Service 1 212 553 1653.

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
Moody's Investors Service, Inc.
7 World Trade Center
250 Greenwich Street
New York 10007
US
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Marcia Van Wagner
Additional Contact
State Ratings
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2019 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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