CHICAGO - The Chicago Transit Authority has received a first time rating from Kroll Bond Rating Agency of AA on its upcoming sale of nearly $600 million of sales tax backed revenue bonds to fund capital projects.
The CTA board at a meeting Wednesday is expected to approve the sale. The board also is expected to approve an ordinance authorizing an up to $350 million loan under the Transportation Infrastructure Finance and Innovation Act.
The upcoming CTA bond sale is secured by a pledge and lien on sales tax receipts distributed by the CTA's fiscal parent, the Regional Transportation Authority of Illinois. In addition to the CTA's share of sales taxes, the receipts include discretionary payments made by the RTA and public transportation fund revenues paid by the state.
Proceeds will fund projects in the CTA's five-year capital improvement program that totals $2.9 billion. Projects include replacement buses and railcars, the rehabilitation of a train station, and other renovations.
The program relies on the additional borrowing of $1 billion through 2018, including $215 million next year.
Kroll on Tuesday released its rating review, assigning its initial AA rating and stable outlook. Standard & Poor's on Monday affirmed its AA rating and stable outlook. After the sale, the CTA will have a total of $3.5 billion of outstanding sales tax bonds.
Principal on the new bonds won't begin amortizing until 2040 and they carry a final maturity of 2049.
Kroll said the credit is strengthened by debt service coverage of 2.55 times of pledged revenues, the availability of surplus pledged revenues to cover 51 % of operating expenses, annual growth in pledged revenues of 9% since 2009, and the essential nature of the CTA's service to the region.
Kroll said rating concerns include a prior lien on RTA debt obligations of the CTA's pledged revenues, that a statutory intercept for unpaid CTA pension contributions could reduce debt service coverage, and that about 28% of pledged sales tax receipts come from RTA discretionary funds.
The state's chronic payment delays have resulted in late payments of public transportation fund matching funds impacting cash flow, Kroll said.
"The stable rating outlook reflects our opinion that the large and diverse tax base supporting CTA's bonds will likely continue to provide what we consider good coverage from sales tax revenue," Standard & Poor's credit analyst John Kenward.
Moody's Investors Service last fall downgraded the CTA sales tax bonds to A1 from Aa3 and assigned a negative outlook, a move triggered by escalating capital needs and what analysts believe is an unfavorable political landscape to raise revenues due to city and state fiscal struggles.
