Illinois RTA Set to Sell $300M of Cash-Flow Notes

CHICAGO — The Regional Transportation Authority of Illinois will sell $300 million of two-year working cash-flow notes Wednesday, rolling over some existing short-term paper while also raising funds to weather the state’s chronically late aid payments.

JPMorgan is senior manager and placement agent with Bank of America Merrill Lynch, BMO Capital Markets and Loop Capital Markets LLC serving as co-managers. Siebert Brandford Shank & Co. is financial adviser and Katten Muchin Rosenman LLP is bond counsel. 

The taxable notes are divided equally into two maturities, coming due in April and June in 2014. About $75 million represents new money and the remainder will pay down existing commercial paper, according to RTA chief financial officer Grace Gallucci.

The deal comes after the agency won a two-year extension of its increased short-term borrowing capacity from state lawmakers. The 2010 legislation that raised its short-term borrowing authority to $400 million from $100 million had been set to expire June 30.

The increased debt authority has proved crucial in helping the agency manage with ongoing state payment delays. Illinois remains more than $300 million behind in transit aid that comes in the form of a 30% match on sales taxes and certain real-estate transaction taxes in Chicago.

“We don’t think the state is going to become current any time soon,” RTA executive director Joseph Costello said of the extension’s importance to transit operations in the region. Gov. Pat Quinn has not yet signed the legislation but is expected to do so.

The RTA — which oversees the Chicago Transit Authority, Metra commuter rail and Pace suburban bus service — issues short-term debt under a working cash note and commercial paper program, which has rolling maturity dates.

Passage of the extension allowed the agency to cut the size of the planned borrowing this week down to $300 million from $400 million. If the extension was allowed to expire, the RTA intended to roll over all of its existing short-term paper and tap the remaining amount of authorization in the Wednesday sale.

“This gives us more flexibility” to borrow as needed and simplifies the financing plan, Gallucci said.

The agency intends to issue a request for proposals for underwriters on short-term borrowing planned under the program over the next two years. It expects to get better terms given the drop in interest rates.

The RTA’s share of sales taxes and its state aid from Illinois are pledged to bondholders. Ahead of the sale, the authority asked for long-term ratings on its note sale and all three rating agencies affirmed its double-A level ratings. Fitch Ratings earlier this year upgraded the credit to AA as part of revised criteria on tax-supported credits but assigned a negative outlook due to operating and capital pressures posed by the state delays.

“The delinquent amount has stabilized and management appears to have weathered the operational stress to date … however, in Fitch’s opinion, the chronic delinquencies have adversely affected system maintenance and capital expansion, and present ongoing risk to the authority’s financial health,” analysts wrote.

Moody’s Investors Service rates the RTA Aa3 with a stable outlook. Standard & Poor’s assigns a AA and a stable outlook. The authority has about $2 billion of long-term general obligation bonds and has exhausted most of its state-authorized long-term borrowing capacity.

The credit benefits from improving sales tax collections — up by more than 5% in 2011 — with sales taxes providing strong debt-service coverage. Another strength is the essential transit services provided by the RTA’s train and bus systems that serve 2.6 million riders daily. Fare box revenue has also recovered due to increased ridership after declines through 2010. The 2012 budget totaled $3.9 billion, including $2.5 billion in operating expenses and $1.4 billion for capital.

On the capital side, the agency halted in its 2012 budget the use of capital funds to cover operating deficits. The RTA has received commitments from Illinois for $1.8 billion of $2.7 billion earmarked for transit in the state’s capital budget, but when the state might commit on the remaining is uncertain. The RTA’s current five-year capital program totals $3.9 billion with federal sources accounting for 41% of funding, state sources for 26%, carryover proceeds for 18% and Chicago Transit Authority bond proceeds for 13%.

The Regional Transit Authority recently succeeded in halting a legislative move by the CTA that in effect could have lifted an RTA-imposed limit on Chicago Transit’s leveraging of its federal formula funds. The RTA currently caps the CTA’s leverage to 60% of federal funds.

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Transportation industry Illinois
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