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01 Aug 2018
New York, August 01, 2018 -- Moody's Investors Service has revised the outlook for bonds issued by the Chicago Transit Authority to stable from negative, while affirming the ratings at current levels. This action applied to the authority's approximately $3.3 billion of sales tax revenue bonds, which were affirmed at A3, as well as $64 million of lease debt issued through the Chicago Public Building Commission, which was affirmed at Baa1.
The stable outlook reflects the recently stabilized credit positions of key related governments, Illinois and Chicago. Moreover, the importance of transit to the area served by CTA should limit adverse actions by Illinois (Baa3 stable) and Chicago (Ba1 stable), despite the long-term liability pressures that these governments face. With solid economic trends in Chicago and its surrounding suburbs, pledged regional sales tax collections will tend to increase, supporting CTA's credit position for the next one to two years.
For the authority's lease bonds, the essential nature of financed facilities (the CTA's headquarters) offsets their weaker claim on a large share of available revenues.
Despite long-term liability pressures facing Chicago and Illinois, CTA's credit position is unlikely to deteriorate for the next one to two years, supporting a stable outlook. With strong economic trends in Chicago and the surrounding service area, pledged regional sales tax collections will tend to grow, and the importance of transit services to the region will limit adverse actions by the affiliated governments.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Sustained trend of improving debt service coverage
- More stringent legal protections for bondholders
- Pledge of new or increased revenues
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Substantial shortfalls in pledged sales tax revenues caused by economic conditions or other factors
- Prolonged decline in debt-service coverage, whether from increased borrowing or revenue underperformance
CTA's sales tax revenue bonds are secured by CTA's Sales Tax Receipts Fund (STRF), which receives transfers of RTA sales tax revenues and the state's PTF matching payments. CTA's sales tax and PTF revenues that exceed debt service requirements are released for operations. These revenues are allocated under a statutory formula and are transferred by RTA after it has satisfied debt-service requirements on its own sales-tax secured bonds. The CTA's bonds therefore are in effect subordinate to the RTA bonds. An exception to this subordination is that the CTA's 2008 retirement benefit-funding bonds, the largest share of CTA's outstanding sales-tax revenue bonds, are additionally secured by Chicago real estate transfer tax (RETT) payments. The RETT revenues are deposited in the Transfer Tax Receipts Fund. The CTA's share of RETT is assessed at a rate equal to $1.50 per $500 under legislation passed in connection with the 2008 bonds. RETT revenues have averaged about $67 million in the past five fiscal years.
The authority's lease bonds are backed by lease rental payments from the authority to the Chicago Public Building Commission, which issued the bonds. The lease payments are equal to debt service, and the life of the lease is coterminous with the bonds. CTA has an unconditional obligation to make lease payments from any lawfully available funds, including federal Sect. 5307 formula funds. The lease obligation is not subject to abatement nor conditioned upon the authority's beneficial use or occupancy of the financed facility. Payment on the lease is not subject to annual appropriation of funds by any unit of government. Moreover, the authority covenants in the bond documents to budget annually for payment of rentals while the bonds are outstanding.
USE OF PROCEEDS
The CTA is the largest of the three service boards that provide public transit in the Chicago area, and it operates the second-largest transit system in the US. The CTA's buses and trains provide approximately 1.7 million passenger trips each weekday.
The principal methodology used in the special tax ratings was US Public Finance Special Tax Methodology published in July 2017. The principal methodology used in the lease ratings was Lease, Appropriation, Moral Obligation and Comparable Debt of US State and Local Governments published in July 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
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