WASHINGTON — About $23 billion of transit bonds that are backed by sales tax have held onto strong credit ratings despite taking a hit from the economic recession and retaining their negative credit outlook, Moody’s Investors Service said Friday in a special report.
Extraordinarily weak dedicated transit sales tax revenues during the past two years stressed the sector and its debt-service coverage levels, causing Moody’s to put a negative outlook on the sector in February. But the 22 issuers Moody’s rates in the sector have kept their footing during the recession.
The majority of ratings for the sector are in the mid-Aa category, the agency said. Moody’s excluded from its analysis mass transit bonds that are not backed by sales taxes.
The most notable exceptions to the steady credit trend, according to the rating agency, were the Regional Transportation Authority of Illinois and the Chicago Transit Authority, which were both downgraded in 2009. Those ratings changes were due primarily to Illinois fiscal problems that caused the state to delay subsidies to the authorities. Moody’s last year gave one issuer, the Bi-State Development Agency in Missouri, a negative outlook partly because of slowed sales tax collections, but mostly because of variable-rate debt that stressed the agency’s credit.
The sales tax transit bonds that have maintained a stable outlook and a rating of at least Aa2 include $3.7 billion outstanding for the Massachusetts Bay Transportation Authority, $2.83 billion outstanding for Los Angeles Metropolitan Transit Authority, and $2.6 billion outstanding for Dallas Area Rapid Transit.
The New York Metropolitan Transportation Authority’s transportation revenue bonds were downgraded by Moody’s earlier this year, but the revenues pledged for those bonds do not include sales taxes, meaning they are not within the $23 billion sales-tax transit bond sector. Other mass transit bonds that are not sales-tax backed include some issued by TriMet in Oregon, New Jersey Transit, and two Pennsylvania transportation issuers’ credits that are backed by various commonwealth taxes.
The credits are strengthened by issuers providing a service that is considered essential, by requirements for high debt-service coverage, and by sales taxes that frequently include large, populous, mixed urban and suburban areas.
“Furthermore, at several transit agencies, sales tax declines have been or will be offset by tax rate increases which, in some cases, have increased pledged revenues for current bondholders,” the special report said.
