CHICAGO - The Greater Cleveland Regional Transit Authority will enter the market next week with $35 million of new-money, limited-tax general obligation bonds, and possibly a refunding piece, as the agency continues on track with its five-year, $433 million capital improvement program.
In advance of the sale, Moody's Investors Services upgraded the credit three notches to Aa3 from A3 based on the security of the authority's limited-tax pledge. Fitch Ratings affirmed its A rating on the RTA's $147.4 million of outstanding debt and the new issue.
Proceeds from next week's bond sale will finance several capital improvement projects, including the completion of the $200 million Euclid Corridor Transportation Project, a rapid transit system that will run along one of Cleveland's main corridors.
"The Euclid Corridor is the largest public transportation project in Ohio," said Joseph Calabrese, chief executive officer and general manager of the RTA. "It's under construction currently and the project will be complete by the end of the year."
NatCity Investments Inc. is lead underwriter on the transaction and Public Financial Management Inc. is financial adviser. The RTA will seek insurance for the bonds and expects to pick an insurer within the next few days, according to Matthew Stuczynski, the NatCity banker handling the transaction.
"It is obviously a healthy environment for us to seek insurance because of the trading differentials," he said.
The authority is considering refunding at least two series that total roughly $46 million if it can achieve at least a 2% net present-value savings, Stuczynski said.
The RTA typically enters the market every two years and expects next week's new-money sale of $35 million to provide local funds for capital improvement projects through 2009, said Loretta Kirk, deputy general manager for finance and administration. Federal grants will fund 80% of the capital plan with the remaining 20% coming from bond proceeds or other local funds.
The bonds are secured by the authority's full faith and credit, including a limited-tax pledge to levy countywide property taxes necessary for debt service if sales tax and fare revenue prove inadequate. Sales tax revenue, which reached $170.5 million in fiscal 2006, comprises 56% of the RTA's gross revenues. The authority claims 1% of the 7.75% sales tax levied by Cuyahoga County - the state's largest county and one of its most affluent.
The RTA could face fiscal pressures if sales tax revenue flattens or declines due to a weak economy, but analysts expect the revenue would nevertheless continue to provide adequate gross debt service coverage. Gross sales tax debt service coverage was 10.83 times in fiscal 2006. In the face of declining ridership, the authority has twice raised fares since 2006.
"Although RTA relies heavily on sales tax collections to pay its operating expenses, the authority has a record of curtailing operating expenses when necessary and managing its needs with available resources," Fitch analyst Vanessa Roywrote in a report on the upcoming sale.
Commenting on the rare three-notch hike in the credit, Moody's analysts said the upgrade came after a reevaluation of the authority and a "deeper" look at the authority's pledge to levy additional property taxes if necessary.
"In our opinion, the current rating more accurately reflects the security provided by the authority's [property tax levy] pledge as well as the 1% dedicated sales and use tax revenues," said analyst Michael Crumpler.
Created in 1974, the RTA is an independent political unit that provides all Cuyahoga County's public transit services. In October 2007 the authority was named North America's best public transportation system by the American Public Transportation Association. q
