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Rating Action:

Moody's lowers rating to A1 on Metropolitan Atlanta Rapid Transit Authority's third indenture sales tax revenue bonds; Outlook revised to stable

Global Credit Research - 13 Aug 2012

$1.43 billion of debt affected by downgrade; Aa2 ratings on $365 million of first and second indenture bonds affirmed

New York, August 13, 2012 -- Moody's Investors Service has downgraded to A1 from Aa3 the ratings on the Metropolitan Atlanta Rapid Transit Authority's (MARTA) $1.43 billion of outstanding third indenture sales tax revenue bonds. Concurrently, we have affirmed the Aa2 ratings assigned to $365 million of outstanding first and second trust indenture sales tax indenture bonds, and revised the outlook on all of MARTA's outstanding debt to stable from negative.

SUMMARY RATING RATIONALE

The third indenture downgrade to A1 incorporates multiple years of contraction of the pledged revenues and their lagging recovery; a relatively low additional bonds test; adequate debt service coverage but an outsized but variable rate debt and swaps portfolio and limited available cash; prolonged strain on the system's operations and its plan to spend down its reserves in the near term; and the lower priority of payments of the third lien relative to the outstanding first and second lien bonds. The affirmation of the first and second indenture Aa2 ratings reflects the fact that both liens are closed to additional issuance; the gross pledge of a 1% sales tax in a broad metropolitan area; strong coverage of peak debt service; and sound legal provisions including the trustee intercept of sales tax receipts. The revision of the outlook to stable from negative reflects modest recovery of the sales tax receipts in MARTA's service area and the expectation that aggregate gross debt service coverage will remain more than 2.2 times

STRENGTHS

-Gross pledge of dedicated sales taxes levied within a large metropolitan area

- Closed first and second trust indentures

- Sound bondholder legal protections including a trustee intercept of the pledged sales tax revenues

- Mature system with manageable additional borrowing needs and aggregate coverage equal to more than 2 times based on current projections

CHALLENGES

- Historical volatility in sales tax revenues that underperformed fiscal 2012 estimates, combined with a relatively weak 1.5 times third indenture additional bonds test

-- Prolonged operating strain that results in narrow cash margins and the authority's plans to further draw down its reserves in the near term

- Outsized variable debt and swap exposure, combined with thin liquidity

Outlook

The stable outlook reflects modest recovery of the sales tax receipts in MARTA's service area and the expectation that gross debt service coverage will remain over 2.4 times.

WHAT COULD MAKE THE RATING GO UP

-- Change in trend of volatility of the pledged revenue or a stronger leverage constraint

-Significant improvement in liquidity to provide a better cushion for operations and variable rate debt or material reduction in variable rate exposure

WHAT COULD MAKE THE RATING GO DOWN

-Additional weakening in the pledged revenues or increased leverage that results in declining debt service coverage

-Inability to adequately management variable rate debt exposure

The principal methodology used in this rating was US Public Finance Special Tax Methodology published in March 27, 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

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 for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Xavier Smith
Associate Analyst
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 lowers rating to A1 on Metropolitan Atlanta Rapid Transit Authority's third indenture sales tax revenue bonds; Outlook revised to stable
No Related Data.

 

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