BART's infrastructure is in need of updates
The San Francisco Bay Area Rapid Transit District plans to refund general obligation and sales tax-backed bonds.

PHOENIX - The San Francisco Bay Area Rapid Transit District will sell more than $350 million of highly-rated refunding bonds next week to refund bonds issued for earthquake safety improvements more than a decade ago.

BART, which provides mass transit services in San Francisco, Contra Costa, and Alameda Counties, is set to issue $187.6 million of sales tax revenue refunding bonds and $170.9 million of general obligation refunding bonds in two negotiated deals. The sales tax bonds are rated AA-plus by both Standard & Poor's and Fitch Ratings, while the GO bonds carry triple-A ratings from both S&P and Moody's Investors Service. Both deals will be underwritten by Wells Fargo Securities and Blaylock Beal Van.

In rating the sales tax bonds, S&P noted strong recent performance by the half-cent sales tax collected in BART's service area. That revenue goes first to the state, and then is distributed to a bond trustee. Sales tax revenue accounts for about 26% of the total system revenue.

"Pledged revenue (BART sales tax) has increased in each of the past four years, most recently by 6.0% to $221 million in fiscal 2014," S&P analysts wrote. "Unaudited results indicate an additional 5.4% growth to $233 million in fiscal 2015."

Fitch Ratings said that the area's strong economy contributes to its ability to finance BART's nearly $10 billion 10-year capital needs.

"The BART counties' tax base benefits from the broad and diverse regional economy, an increasing population and labor force, and high wealth levels," Fitch said. "The system is positioned to continue its sound financial trends due to increased ridership, the board's demonstrated willingness to increase fares and rising tax revenues. However, budgetary pressures are expected to remain due to rising labor costs and significant capital needs."

The GO bonds are secured by an unlimited ad valorem tax in BART's service area that authorized in a 2004 bond referendum. Voters approved $980 million of bonds for earthquake safety projects.

BART has about $627.1 million in GO bonds outstanding, S&P said, along with $674.9 million of sales tax bonds. BART has a pension liability of about $165 million as of its most recent actuarial tally in 2013.

The sales will be used to refund bonds issued in 2005, 2006, and 2007. Despite the overall strong financial profile of BART and of the Bay Area, rating analysts said some reliance on federal funding for long-term capital needs could cause some credit pressure.

"BART, like many California transit districts, has not yet received federal funds for capital needs that it expected this year due to an on-going dispute with the U.S. Department of Labor (DOL) regarding California's Public Employee's Pension Reform Act of 2013 (PEPRA), Fitch noted. "DOL argues that PEPRA infringes upon transit workers' collective bargaining rights and refuses to certify federal funding grants in response. DOL certification is required for the funds to be distributed. Approximately $91.7 million in federal funds have not been distributed to BART, an amount that is expected to increase as the dispute continues."

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