DALLAS — The Utah Transit Authority plans to reduce its variable-rate debt this week with a private placement of $144 million of subordinated sales-tax revenue bonds.
After this deal, UTA will have about $757 million of subordinate-lien bonds and $1.2 billion of senior-lien sales-tax revenue bonds, according to Fitch Ratings.
Fitch rates the deal A-plus with a stable outlook. Previous subordinate-lien deals were rated A-minus by Standard & Poor's and A1 by Moody's Investors Service.
Senior-lien debt is rated AAA by S&P, Aa2 by Moody's and AA by Fitch.
"Fitch views the transit authority's pricing framework and financial flexibility as weak," wrote Fitch analyst Scott Monroe. "However, as a new system, infrastructure replacement needs are manageable."
According to the authority's projections, the anticipated 5% growth rate in revenues will maintain debt service ratio at 1.03 times at least fiscal 2016. UTA's coverage levels dip below 1.0 times in fiscal years 2017 and 2018, but those figures don't reflect expectations that the 2014 bonds will be refunded prior to their maturities, according to Fitch.
Debt service rises to a maximum of roughly $155 million in fiscal 2037 from $101.5 million in fiscal 2014, Fitch said. Debt service step-ups up substantially in fiscal year 2018, adjusted for the anticipated refunding of the 2014 bonds.
"Concerns over potentially weak future coverage are somewhat mitigated by the service area's solid prospects for growth and sales tax revenue gains, and a history of strong community support as measured by voter approval for related sales tax revenue hikes," Monroe wrote. "Also, the authority's high level of taxes as a percentage of total revenues (about 60%) reduces the risk that weak operations will affect overall revenues, given the lower level of correlation between sales tax performance and fare box revenues."
UTA, which serves the Salt Lake City and Provo region of Utah, last year completed financing for its 2015 rail projects and converted about half of its variable-rate bonds to fixed rate in a $296.8 million issue.
UTA serves about 2.27 million residents-- about 79% of the state -- in Salt Lake County and all or portions of six other counties. The service area population increased 10% in the five years between 2007 and 2012, according to S&P.
