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MTA in Post-Storm Bond Sale Flurry

New York’s Metropolitan Transportation Authority, still repairing its subway and commuter rail systems after Hurricane Sandy’s damage, will continue its flurry of bond issuance Wednesday, both current and postponed from last week.

The authority, which is restoring service piecemeal after Sandy flooded its tunnels, has a busy calendar this week that features nearly $950 million worth of bond and note sales. The MTA, which has about $32 billion of debt outstanding, operates the New York City subway system, Metro-North and Long Island railroads and some bridges and tunnels in the region. It is one of the largest issuers in the municipal market.

On Tuesday, it priced $125 million of Triborough Bridge and Tunnel Authority Series 2009A-1 conversion of mandatory put bond to fixed-rate bonds, with a final maturity of 2038. Loop Capital Markets was the senior manager. Also on Tuesday, the MTA held a retail pricing for $360 million of Series 2012G floating rate notes, with the institutional sale set for Wednesday. JPMorgan is the sole manager for the notes, which feature 67% of one-month London Interbank Offered Rate plus a spread in soft maturities ranging from two to five years.

Retail pricing will be Wednesday, institutional Thursday, for two series of transportation revenue bonds -- $350 million of Series 2012H new money with 30-year level debt service, and a $112 million conversion of Series 2008-B2 mandatory put bonds to fixed-rate bonds, with a final maturity of 2023. Siebert Brandford Shank & Co. is the senior manager for both sales.

MTA officials last week said they did not envision any additional borrowing as a result of Sandy.

They said the agency’s roughly $1.3 billion of unrestricted cash should be enough to cover the extra costs, and that short-term borrowing to bridge reimbursements from the Federal Emergency Management Agency and insurers would not be necessary.

“We fully expect the operating and capital costs will be fully reimbursed by FEMA and our insurance,” chief financial officer Robert Foran said in a conference call with reporters.

John Hallacy, the head of municipal research at Bank of America Merrill Lynch, said some short-term borrowing might be needed. “It might make sense to tap the market for working capital. They’ve got to make those repairs,” said Hallacy. “Short-term money right now is pretty reasonable.”

FEMA said last week that Washington would cover emergency public transportation costs through Nov. 9 in New York. MTA board members expect a preliminary estimate on damages and lost revenue from the storm around Nov. 20.

Moody’s Investors Service rates the transportation revenue bonds A2, with Standard & Poor’s and Fitch Ratings each rating them A.

“Assessment of the hurricane damage will take time and the cost will be substantial,” Moody’s said in a report after the storm likely caused the worst damage in the 108-year history of the authority.

Moody’s said federal aid should partially offset the need to issue more debt, although increased leveraging of the MTA’s debt is possible, including transportation revenue bonds, Bridge and Tunnel Authority bonds and dedicated tax-fund bonds. “Moody’s will continue to monitor the potential impact of the clean-up and repair costs on the MTA’s operating and debt costs,” the rating agency said.

Standard & Poor’s credit analyst Joseph Pezzimenti said this week that the MTA’s biggest financial challenge will be to bridge the gap before it gets FEMA reimbursements and insurance proceeds. “As a result, the ratings could face stress if the agency experiences material erosion in its liquidity position,” Pezzimenti said.

“That’s what they like to call a developing situation,” Hallacy said of the rating agencies.

Even before Sandy hit, the MTA was facing a myriad of financial pressures. They include huge capital projects such as the Second Avenue subway line, East Side access for Long Island Rail Road trains and the Fulton Street transit hub; labor negotiations; and a legal challenge to the payroll mobility tax, a 34-cent levy on every $100 on payroll costs for employers in metro New York that raises an estimated $1.3 billion annually.

The authority had planned public meetings on proposed fare and toll increases throughout November. Its board, which canceled its monthly meetings last week because of the storm, is expected to approve one of four fare-hike plans in December, with the increases to take effect in March.

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