The Massachusetts Bay Transportation Authority is eager to sell $350 million of new-money assessment bonds, once market conditions allow for the agency to issue long-term debt.
Ideally, the MBTA would like to sell the debt next week, but can afford to hold off if the market fails to offer attractive rates, according to chief financial officer Jonathan Davis. JPMorgan as book-runner will lead a banking syndicate of co-senior managers that include Barclays Capital, Citi, Goldman, Sachs & Co., and Ramirez & Co. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC is bond counsel. There is no outside financial adviser. The bonds will not be insured.
Standard & Poor's and Moody's Investors Service rate the deal AAA and Aa1, respectively.
"This is subject to market conditions, albeit we would like to get in the market next week," Davis said. "It may very well be delayed for a few weeks just until market conditions improve...But, we would also like to get out there before there's a flood of municipal transactions. We've heard that there are a lot on the sidelines now, again assessing the market conditions, and they may or may not come to market at some time between now and the end of the calendar year, but we'd like to be out in front of those."
Davis said the agency has the ability to hold off on the borrowing, if need be, until about mid-November. At that time, the MBTA will need to move forward on rolling over roughly $100 million of commercial paper and funding state-of-good-repair projects, which the bond proceeds will help support.
After some difficulty, the commonwealth on Wednesday sold $750 million of revenue anticipation notes. State treasury officials had postponed the transaction twice before finally switching to a negotiated sale from a competitive bid to help finish the deal. The Bay State's ability to access the illiquid short-term market could generate more confidence in bringing bond deals to market overall.
"That certainly gave us some confidence that perhaps we could still enter the market next week," Davis said. "We still have some time. I don't want to go into a market that is a high-interest rate environment if people expect it to calm down later on."
The fixed-rate Series 2008A assessment bonds offer serial maturities ranging from 2013 through 2029. The bonds are backed by special assessments applied to municipalities that utilize the agency's public transit system. The authority expects it will collect $146 million of assessment revenue in fiscal 2009, which began July 1, having received approximately $143 million in fiscal 2008. Debt service coverage is estimated at 2.69 times in 2013, according to Standard & Poor's.
The assessments are dedicated revenues and not subject to appropriation. In 2006, lawmakers implemented a base-minimum assessment payment to the MBTA of $136 million, with that amount increasing each year based upon inflation, yet limited to a 2.5% boost annually.
The authority's last assessment bond transaction was a $163.1 million deal that priced on Aug. 31, 2006, with yields ranging from 3.52% with a 5% coupon in 2007 to 4.38% with a 5.25% coupon in 2035.
Along with the assessment revenues, the MBTA receives a dedicated portion of the state's 5% sales tax per year, which secures sales-tax bonds the agency has sold to fund infrastructure projects.
The agency received $756 million and $767 million of sales-tax revenues in fiscal 2008 and fiscal 2009, respectively. Yet those payments reflect the base amount that the commonwealth must allocate to the MBTA as the state's sluggish sales tax revenues have under-performed over the past few years.
In fiscal 2008 and fiscal 2007, the state paid the agency $65 million and $41 million, respectively, from the general fund in order to reach the base minimum allocation. In addition, the state anticipates directing $44 million in fiscal 2009 to help augment less-than-anticipated sales-tax revenues.
Conversely, these two funding programs strengthen each other by the authority's ability to cross collateralize between the two revenue streams. The MBTA can tap into assessment funds to help pay debt service costs on sales-tax bonds and vice versa. The authority has nearly $5 billion of total outstanding debt.
On Oct. 1, the MBTA terminated four outstanding floating-to-fixed-rate derivatives that it held with Lehman Brothers Special Financing Inc. The authority paid Lehman a total of $807,000 to exit the swaps, then began four swap transactions with Deutsche Bank AG that maintain the same percentage rates, terms, and conditions as the Lehman swaps. The MBTA received an up-front payment of $3.9 million from Deutsche in the transaction.
Challenges for the authority include structural deficits. Officials were able to shore up a $75 million deficit in the current budget through rainy-day funds and debt restructuring, yet the agency will probably face another funding shortfall in fiscal 2010. Davis said the MBTA has yet to calculate that deficit.
"We haven't started the 2010 budget yet," he said. "We're just about ready to do that but it still will be several months away before we have all the information available."
The MBTA oversees a system of buses, commuter lines, subways, and trolleys throughout eastern Massachusetts. The authority provides an estimated 1.1 million passenger trips every business day and is the oldest and fifth largest transit system in the U.S.
