DALLAS — Standard & Poor’s and Fitch Ratings downgraded the Utah Transit Authority’s debt as it prepares to issue $200 million of Build America Bonds.
Standard & Poor’s lowered the rating on the UTA’s subordinate-lien debt two notches to A from AA-minus with a stable outlook.
Analysts also revised the outlook on the authority’s senior-lien sales tax bonds of about $1.2 billion to negative from stable while affirming the AAA rating.
“The downgrade reflects our view of recent declining trends in pledged revenue and coverage, and the authority’s plan to issue $340 million of additional subordinate-lien debt in the next three years, which could potentially bring subordinate-lien debt service to its 1.1 times maximum annual debt service additional bonds test,” wrote Standard & Poor’s credit analyst David Hitchcock.
Fitch downgraded both the senior- and subordinate-lien bonds, lowering the senior debt to AA from AA-plus and the subordinate to AA-minus from AA, with stable outlooks on both.
“While the ratings continue to reflect the strength and diversity of the UTA’s service area within Utah’s economic epicenter (the Wasatch Front), and the demonstrated record of successfully and conservatively managing transit service operations and expansion, the reduced debt-service coverage is not consistent with the higher rating category,” wrote Fitch analyst Karen Krop.
Moody’s Investors Service maintained its Aa3 rating on the UTA’s subordinate-lien bonds.
The authority is expected to price the bonds Thursday through negotiation with Morgan Stanley as senior manager with Bank of America Merrill Lynch and Goldman, Sachs & Co. as co-managers. Zions Bank is financial adviser and Ballard Spahr LLP is bond counsel. The UTA’s board meets Thursday to approve the resolution for issuing the debt.
The bonds, maturing serially through 2040, are special limited obligations of the authority, backed by sales and use taxes in the service area. Pledged revenues include fares and federal interest subsidies.
“Pledged sales tax performance had been strong leading into the recession, reflective of the area’s growing economy,” Fitch’s Krop noted. “However, the impact of the national recession on the local economy is reflected in consecutive declines in sales tax collections in fiscal 2008 and 2009, when revenues declined year-over-year 2% and 9.1%, respectively.”
The revenue decline would have been steeper without additional levies in Weber, Davis, and Box Elder counties that began in July 2008 and from two new cities — Saratoga Springs and Eagle Mountain — in April 2009, Krop said.
Proceeds from the bond sale will expand the UTA’s Trax system of light-rail and commuter-rail lines. The agency began operating Trax with 19 miles of light-rail lines in Salt Lake County in 1999. At a cost of more than $600 million, the 44-mile Commuter Rail North project opened in April 2008 running from Salt Lake City to Weber County.
