Institutional investors shrugged off a recent downgrade from Standard & Poor’s and a critical fiscal control board report during the Massachusetts Bay Transportation Authority’s recent $357.4 million sale of senior sales tax bonds.
According to Jonathan Davis, deputy general manager and chief financial officer of the state-run agency that operates Greater Boston’s transit system, the MBTA sold the Series 2015 A and B bonds at levels comparable to the commonwealth’s highly rated general obligation bonds.
Ramirez & Co. led the underwriting syndicate.
“The bond sale was extremely successful,” Davis said by telephone Tuesday from the American Public Transportation Association conference in San Francisco. “I know our investors understand the strength of the credit and the non-impairment provision. That’s reflected in the interest investors have shown.”
The state legislation that formed the MBTA Fiscal Oversight and Control Board, after a record 110 inches of snow crippled some subway and commuter lines last winter, specified that bondholder rights would not be altered or impaired.
The bonds are secured by the greater of a base revenue amount guaranteed by the commonwealth, and by a 1% statewide sales tax. Bonds also benefit from assessments municipalities within the MBTA’s service territory pay.
The authority achieved an all-in cost of funding of 3.72% on $177.855 million of Series A Bonds due 2022 through 2045, and 3.14% on $180.55 million 2015 Series B refunding bonds due 2019 through 2035, Davis said.
On a present-value basis, the refunding saves MBTA – which locals call the “T” -- $19.4 million of interest, or about 9.88% of current debt service, said Davis.
S&P on Sept. 21 lowered its rating on the sales tax bonds to AA-plus from AAA, saying the MBTA’s potential capital needs could result in “substantial additional bonding.” Moody’s Investors Service rated the bonds Aa2. Moody’s rates Massachusetts GOs Aa1, while Fitch also rates them AA-plus.
The control board that week called the MBTA’s operating budget unsustainable, with expenses increasing at nearly three times the rate of revenue growth. Left unchecked, its structural operating deficit could reach $427 million by fiscal 2020, board said.
In addition, annual capital spending on deferred maintenance and capital investment – the so-called state of good repair backlog – averaged $378 million per year from fiscal 2009 through 2014, well below the $472 million necessary to keep the backlog from worsening.
“We have our challenges on the financial side and the state of good repair side, but the T continues to make strides in improving efficiency and delivery of service,” said Davis.
The MBTA has sold about $10.7 billion of debt since 1965. Its highest issuance was $1.6 billion in 2004.