Market Overview

Fitch Affirms MTA's (NY) $5.4B Dedicated Tax Fund Bonds at 'AA-'; Outlook Stable

Share:
NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has affirmed the unenhanced, long-term 'AA-' rating on the following Metropolitan Transportation Authority, NY (MTA) bonds:

--$5.4 billion outstanding dedicated tax fund (DTF) bonds.

The affirmation is in conjunction with and incorporates the restructuring and remarketing of the authority's 2002B variable-rate bonds, which is scheduled for later this month. The authority plans to remarket the bonds in three subseries: $150 million subseries 2002B-1 (variable-rate bonds with external liquidity); $128.2 million 2002B-2 (fixed-rate bonds); and $161.8 million 2002B-3 (floating rate notes, subseries 2002B-3a, 3b, 3c, and 3d).

The fixed-rate bonds and floating-rate notes are expected to sell via negotiation the week of March 19, 2012.

The Rating Outlook is Stable.

SECURITY

The DTF bonds are secured by a gross lien on the Mass Transportation Trust Fund (MTTF), which is funded from an allocation of the state's petroleum business tax, motor fuel tax and motor vehicle fees, subject to annual appropriation by the state legislature. Providing further security is a standby gross pledge of the Metropolitan Mass Transportation Operating Assistance Account (MMTOA), which is funded from a regional sales tax, the state petroleum business tax, a state franchise tax and a regional franchise tax surcharge, also subject to annual appropriation.

KEY RATING DRIVERS

--SOLID DEDICATED TAX STREAM: The dedicated taxes are diverse and derived from a broad, wealthy state and regional economy, although revenues are sensitive to economic cycles.

--RECORD OF STATE SUPPORT: Tax revenues allocated to the DTF are subject to annual appropriation by the state legislature, and the state has discretion regarding revenues flowing to the fund. The state has a track record of providing a generally reliable revenue stream to the dedicated tax fund.

--AMPLE COVERAGE: Dedicated revenues provide ample coverage of maximum annual debt service (MADS) and there is a strong incentive to limit leveraging of the DTF given the demands on surplus revenues for operating support of transit and commuter rail.

--INSULATION FROM MTA OPERATIONS: The security for the dedicated tax bonds is somewhat insulated from the operations of the MTA, although excess DTF revenues are needed to support transit operations.

CREDIT PROFILE

Underlying the 'AA-' rating on the DTF bonds is the amount and diversity of revenues that are pledged to the DTF for debt service on its bonds, subject to state legislative appropriation, the record of state support of the fund, and the expectation that the MTA will continue to maintain sufficient financial flexibility within the DTF to not only cover DTF bond debt service adequately but also provide sizable transfers to the MTA to support transit and commuter rail operating needs.

The bonds are special obligations secured by state taxes deposited in the pledged amounts account from MTTF and MMTOA receipts. The state legislature established the MTTF in 1991 to address the need for continued capital investment in the state's transportation infrastructure. MTTF revenue is derived from statewide petroleum business taxes, motor fuel taxes, and motor vehicle fees. The MMTOA was created in 1980 in anticipation of continuing ongoing operating deficits of state mass transportation systems. Four categories of special taxes are deposited into the MMTOA: a temporary regional franchise tax surcharge on business activity carried out within the transportation district that, though temporary, has been regularly extended since 1982, a 3/8% regional sales tax imposed on sales and uses of certain tangible property and services within the MTA transportation district; a portion of franchise taxes on certain transportation and transmission companies statewide; and an additional portion of statewide petroleum business taxes.

Tax revenues allocated to the DTF are subject to annual appropriation by the state legislature. The state is not bound or obligated to continue imposition of taxes and fees from which trust fund revenues are currently derived and can amend, modify, repeal, or otherwise alter statutes imposing or relating to the fund or the taxes or appropriations. As a result, the rating on the DTF bonds could not be higher than the appropriation debt rating of New York State (currently 'AA-' with a Positive Outlook, one notch below the state's general obligation rating).

The state has a track record of providing a generally reliable revenue stream to the DTF, although as part of a gap-closing plan in late 2009 the state legislature reduced the MMTOA appropriation. This was the first time an existing appropriation to the MTA from a dedicated tax that had already been collected by the state had been reduced, and there has been no further such action since that time.

Total estimated MTTF and MMTOA receipts of about $1.9 billion in state fiscal year 2012 (ending March 31, 2012) provide 4.7 times (x) coverage of MADS after this sale. MTTF receipts alone provide coverage of about 1.6x MADS. An additional bonds test requires not less than 1.35x historical coverage of MADS by MTTF receipts and investment income, and not less than 2.5x coverage of MADS by combined MTTF and MMTOA receipts and investment income. As MTA issues additional bonds to finance its large transit and commuter rail capital needs, debt service coverage is expected to fall but still be strongly based on MTA's need to sustain operating subsidies. This necessity provides practical limits on the amount of debt issued in the future.

Receipts are transferred to the debt service account monthly in the amount of 1/5 of the next interest payment and 1/10 of the next principal payment. Surplus MTTF and MMTOA receipts are used by the MTA for capital and operating needs of the transit and commuter rail systems, including debt service on the MTA's transportation revenue bonds (rated 'A' with a Stable Outlook by Fitch). The transportation revenue bonds are also secured by MTA's operating receipts and other sources.

For more information on the MTA, see Fitch's press release 'Fitch Rates Metropolitan Transportation Authority (NY) Revs 'A'; Outlook Stable' dated Feb. 28, 2012.

For more information on the state's general credit, see Fitch's press release 'Fitch Rates New York State's $317MM GO Bonds 'AA'; Outlook Positive' dated Nov. 30, 2011. Both are available on Fitch's web site at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from IHS Global Insight and the underwriters.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648897

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Primary Analyst
Laura Porter, +1-212-908-0575
Managing Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Douglas Offerman, +1-212-908-0889
Senior Director
or
Tertiary Analyst (MTA transportation revenue credit)
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson
Ken Weinstein, +1-212-908-0571
Senior Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com