The Chicago Transit Authority late last week received a AA-plus rating from Standard & Poor’s on its upcoming pension-related issue of $1.9 billion of sales and transfer tax revenue bonds.
The rating marks a two-notch improvement over the Aa3 credit assigned to the bonds by Moody’s Investors Service earlier last week. The CTA has submitted the plan to Illinois auditor general William Holland for review and hopes to issue the bonds later this summer or in the fall.
The financing represents one piece of the transit bailout package that included a sales tax hike in the Chicago area and an increase in the city’s tax on real estate transactions. The tax hikes will provide an additional $500 million annually for the region’s transit agencies that operate under the Regional Transportation Authority of Illinois, including the CTA, Metra commuter rail, and Pace suburban bus service. The CTA’s share from the tax increases this year totals about $120 million with another $200 million in future years.
The bonds are to be secured by the CTA’s proceeds of the increase in the city’s tax on real estate transactions and the authority’s share of RTA sales taxes collected in the region after sufficient funds are withdrawn to cover the RTA’s own debt service obligations, operational costs, and distributions to Pace and Metra.
“We expect that the amount of additional RTA sales tax revenue debt that the state will eventually authorize will be manageable, and that the large and diverse tax base supporting the CTA’s bonds will continue to provide strong debt service coverage from sales tax revenues,” said Standard & Poor’s analyst John Kenward.
The deal includes a $578 million tranche to fund a permanent health care trust that would be established to cover retirees’ other-post employment health care benefits. A second tranche for $1.2 billion would bring the funded ratio of the CTA’s pension fund up to about 80%. The unfunded pension liability currently stands at $3.5 billion for a funded ratio of just 30.2%. The CTA is required to reach a 90% funded ratio by 2060.
