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Announcement:

Moody's maintains underlying A2 on MTA's (NY) TRB Variable Rate Subseries 2002G-1 with conversion to FRNs; outlook stable

Global Credit Research - 20 Sep 2013

New York, September 20, 2013 -- Moody's Investors Service will maintain the underlying A2 rating on the New York Metropolitan Transportation Authority's (MTA) Transportation Revenue Variable Rate Refunding Bonds Subseries 2002G-1 in conjunction with the expected October 3, 2013 conversion of the bonds to floating rate notes. On that date the letter of credit issued by The Bank of Nova Scotia will expire on October 7, 2013 and we will withdraw the enhanced Aa1/VMIG 1 ratings that are based on the liquidity facility. The bonds, currently in a variable rate weekly mode, will be re-designated into several subseries as Floating Rate Notes. On the mandatory tender date (October 3, 2013) the re-designated subseries will be remarketed from a weekly mode to a term rate mode, each bearing interest based on an adjusted LIBOR rate. Moody's will review the remarketing documents prior to the conversion and will assign ratings to each subseries on the mandatory tender date of the current Subseries 2002G-1.

SUMMARY RATING RATIONALE

The A2 long term rating incorporates the diversified revenue base that supports the TRBs; sound overall financial management with adequate flexibility to manage a complex portfolio of variable rate debt and swaps; high fixed costs for labor and benefits; a substantial capital program; and strong demand for the essential services the MTA provides to New York City and the seven surrounding New York metropolitan counties. Recent positive developments reflected in the July 2013 financial plan include: continued improvements in the MTA's out-year ending cash balances; a favorable ruling on the payroll mobility tax (PMT) litigation; achievement of recurring operating savings as planned; and debt service savings due to refunding and conservative budgeting. However, the MTA still faces challenges. A large portion of its 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 and 2013. 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. In addition, while the MTA has sufficient liquidity on a consolidated basis to avoid short term borrowing for cash flow needs, days cash on hand is low for a large enterprise system and liquidity available for puttable variable rate debt is not made publically available on a regular basis.

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 and 2008 recessions, 2005 TWU Local 100 strike, and Tropical Storm Sandy

• Significant investment over three decades in normal replacement and state of good repair maintenance and system expansion

• History of five-year capital plan since 1982

CHALLENGES:

• Consolidated days cash on hand (98 in 2012) is low for a large enterprise system

• Information on available liquidity is not made regularly available.

• 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.

WHAT COULD MAKE THE RATING GO UP?

• Continued reductions in 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?

• 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

• Reduced liquidity as reflected in a decline in days cash on hand.

• Growth in debt service as % of consolidated operating revenues at a pace similar to the past five years

• Return to period of deferred maintenance

REGULATORY DISCLOSURES

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 Moody's Ratings Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the time horizon in which a credit rating action may be after a review or outlook action took place.

Please see ratings tab on the issuer page on www.moodys.com for the last rating action and the history of the rating. 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/disclosures for further information.

Please see the ratings disclosure page on www.moodys.com/disclosures for disclosures on significant Moody's shareholders and on certain relationships between Moody's, its shareholders and/or rated issuers.

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.

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

Nicholas E Samuels
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 maintains underlying A2 on MTA's (NY) TRB Variable Rate Subseries 2002G-1 with conversion to FRNs; outlook stable
No Related Data.

 

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