The need for New York's Metropolitan Transportation Authority to borrow up to $4.8 billion in short-term recovery notes for Hurricane Sandy-related costs is a credit negative, according to Moody's Investors Service.
Moody's, in a weekly credit outlook issued Monday, said the extra borrowing would further stress the agency, when combined with its $32 billion of debt outstanding and plans for substantial capital borrowing over the next few years.
At last week's monthly board meeting, the MTA's first since Sandy struck the region on Oct. 29, chairman Joseph Lhota and chief financial officer Robert Foran said the authority would have to borrow to cover the $5 billion in infrastructure damage.
"That's just to get us to where we were the day before Sandy hit," Lhota said. "None of it is for hardening the system."
Moody's rates the system's transportation revenue bonds A2. Fitch Ratings and Standard & Poor's assign A ratings.
An MTA source called Moody's statement "misguided," adding, "unfortunately, they're looking at it narrowly and reacting to what's essentially a worst-case scenario."
The MTA board in two weeks will finalize its fiscal-year financial plan.
The MTA, whose 108-year-old system sustained its worst damage ever, may be on the hook for an estimated $950 million of its nearly $5 billion of losses, assuming standard recoveries from its insurance policies and 75% from the Federal Emergency Management Agency.
Foran last week pegged the losses at $4.8 billion for infrastructure damage, and $268 for lost revenue and increased operating costs.
Capital repairs for flooded subway tunnels, and damage to stations and equipment account for about two thirds of storm-related costs, according to the MTA.
The MTA, through its operating divisions and bond security pledges, would issue nearly $3 billion of recovery anticipation notes next year and almost $2 billion in 2014. Its Triborough Bridge and Tunnel Authority would sponsor about $800 million of the notes to finance bridge and tunnel repair. The MTA would issue the rest of the $4 billion as transportation revenue bonds or dedicated tax fund bonds, its two most common forms of issuance.
"The MTA's recent focus on reducing operating costs has produced significant recurring savings, but additional savings will be challenging because a large portion of its costs are fixed for labor, benefits, and debt service," Moody's said. "Failure to achieve further cost reductions or other savings would make it more difficult to absorb the planned increase in debt issuance."
