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03 Oct 2019
New York, October 03, 2019 -- Moody's Investors Service has assigned a MIG1 rating to the Metropolitan Transportation Authority's (NY) $600 million Transportation Revenue Bond Anticipation Notes, Series 2019E. The notes may be split into additional subseries at the time of the sale, all of which will carry the MIG 1 rating. The outlook on MTA's long-term Transportation Revenue Bonds (TRB) bonds (A1) is negative.
The MIG 1 rating reflects the expectation that Metropolitan Transportation Authority's (MTA) will have strong market access at BAN maturity given the MTA's satisfactory long-term credit quality (A1 negative; Transportation Revenue Bonds), 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.
A key rating consideration in the short-term MIG 1 is the A1 rating on MTA's Transportation Revenue Bonds (TRB). The A1 is based on the MTA's 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 (Aa1 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, high leverage, large capital needs and growing public pressure to improve service and limit fare increases. In the longer term, MTA will also be challenged by social risks such as growing and relatively inflexible labor costs, and environmental risks (particularly from natural disasters), although the latter is partially mitigated by MTA's significant resiliency investments and the availability of private insurance and federal disaster recovery assistance.
The short-term BAN rating does not carry an outlook. The outlook for the A1 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 MTA's supporting governments identified significant transit capital funding in early 2019, it remains unclear if solutions will fully fund MTA's substantial capital needs, and projected operating budget gaps remain. Without a full budget 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
- Not applicable
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Significant decline in available liquidity or increasing liquidity constraints
- Evidence of reduced market access
- Sustained pattern of tight timing between takeout pricing and BAN maturity
- Downgrade of the long-term TRB rating below A2 stable
The BANs are payable from proceeds of previously-authorized TRB notes and/or long-term TRB bonds, 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 August 31, 2019 and an available line of credit, MTA's available resources would provide ample 2.2x coverage of the Subseries 2019E BANs maturing on September 1, 2020 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
BAN proceeds will finance various transit and commuter capital projects.
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.
The principal methodology used in this rating was US Bond Anticipation Notes published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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