The Chicago Transit Authority enters the market next week with a federal grant-backed refunding issue.

CHICAGO -- The Chicago Transit Authority next week prices a $176 million issue refunding some of its federal grant-backed debt for savings.

Proceeds will advance refund $131 million of Federal Transit Administration Section 5307 grant-backed bonds with maturities from 2018 to 2021 and $45 million of FTA Section 5337 grant-backed bonds maturing from 2018 to 2026.

The 5307 bonds are secured by a pledge of the authority's share of Urbanized Area formula funds and the 5337 bonds are secured by a pledge of the authority's share of State of Good Repair formula funds.

"Grant receipts have unique protections," CTA chief financial officer Ronald DeNard said in an online investor presentation. "CTA capital grant receipt bonds will continue to receive funding regardless of federal spending cuts, sequestration, or temporary federal shutdowns."

RBC Capital Markets and Citi are senior managers with A.C. Advisory Inc. and Public Financial Management Inc. advising the authority.

Ahead of the sale, Fitch Ratings affirmed the bonds' BBB rating and stable outlook and Standard & Poor's affirmed its A rating and stable outlook.

"The ratings reflect our view of CTA's good maximum annual debt service as well as the system's essential nature as the Chicago region's largest mass transit system," said Standard & Poor's analyst Todd Spence. "The rating is further supported by our view of the historical precedent of federal funding."

The bonds enjoyed 2.18 times maximum annual debt service coverage for the section 5307-backed bonds and 4.27 times coverage for the 5337-backed bonds in federal fiscal 2014.

The CTA expects to receive $126 million under the 5307 program next year and $130 million under the 5337 program with 3% growth expected annually going forward, according to the investor presentation.

"The current financial structure can accommodate relatively large declines in 5307 and 5337 funds and still meet 1 times debt service coverage," Standard & Poor's said.

Challenges include the reliance on a stand-alone security and the possibility of a decrease in revenues available for distribution from the highway trust fund and the FTA's general fund, changes to the federal transit program, and potential delays in congressional reauthorization of multiyear transportation bills.

Standard & Poor's said it doesn't expect changes to end the long-standing practice of federal aid for transportation.

"However, program rule changes, constrained funding sources, and federal budget pressures could lead to lower authorization and appropriation levels and diminish coverage, which we currently view as very strong for most transportation grant-backed bonds we rate," analysts wrote.

The sale is planned as Congress continues work on a long-term reauthorization of federal transportation funding.

The Senate on Thursday approved a three-month extension of the Highway Trust Fund to keep transportation dollars flowing while lawmakers work out differences on the long-term package. The House approved the short-term extension before breaking through August.

The CTA, formed in 1945, operates the second-largest public transit system in the nation serving Chicago and 35 surrounding suburbs with buses and rail transit lines. It's one of three service boards under financial oversight of the Regional Transportation Authority of Illinois.

Ridership has been relatively stable in recent years, although it saw modest declines in 2013 and 2014. Ridership is projected to rebound this year with a 1.6% increase to 522.5 million rides.

The CTA's 2015 capital budget totals about $800 million and its five-year capital plan through 2019 reaches $2.4 billion, relying in part on $700 million in borrowing including $560 million in Transportation Infrastructure Finance Innovation Act loans and $145 million in sales tax backed borrowing.

Kroll Bond Rating Agency and Standard & Poor's both rate the sales tax bonds AA.

The CTA's capital work includes the purchase of more than 800 new rail cars, a major track and station overhaul of a key train line, the purchase of 300 new buses and rehabilitation of another 1,000, as well as other track and station improvements.

The CTA is also upgrading its line to O'Hare International Airport to reduce travel times.

 

 

 

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.