The nation's first zero-emission locomotives will be among the projects funded by bond proceeds from Chicago's Regional Transportation Authority's $130 million of Series 2025A general obligation bonds.
The pricing date, April 28, is firm, RTA Chief Financial Officer Kevin Bueso told The Bond Buyer.
"It was contingent on the board approving and us getting the ratings within the timeline that we had, and we have gotten both of those, so we are good," he said.
Fitch Ratings assigned
Moody's Ratings has not rated these bonds, but last month
The RTA's full faith and credit is pledged for payment of principal and interest. The bonds are secured by a first lien on and security interest in all lawfully available revenues, and all other lawfully available funds received or held by the authority, according to a copy of the preliminary official statement shared with The Bond Buyer.
Those revenues include sales taxes levied in Cook County and the collar counties (DuPage, Kane, Lake, McHenry and Will), and public transportation fund distributions (PTF) from the state.
Bueso cited a plethora of reasons why the RTA chose to go to market on Monday. With the uncertainty around tariffs, "rates have moved higher, and we don't expect that to be a short-term [phenomenon]," he said.
"We only forecast that to get worse and worse," Bueso said. "So there's a greater risk in the coming months, as well. The market has not factored in the risk of a full-blown trade war just yet, so market valuation reflects the assumption that volatility is transitory.
"We also are mindful that there's a threat to the tax exemption and there's a debate about tax reform," he added.
RTA also sees some headline risk in the summer months. With the federal budget debate about to accelerate, there could be cuts to the federal workforce in the Chicago region, which would impact the local economy, he said.
The RTA's current credit strength may bring tighter spreads, so they wanted to lock in favorable borrowing terms sooner, Bueso added. And the RTA felt that strong investor demand for high-grade paper during volatile times may benefit this issue.
"And then finally, liquidity windows can close quickly, especially given the market conditions," Bueso said. "These projects are ready to go; some of them have already started. So the project cash flow needs and the timeliness would be disrupted by anything that I mentioned before in terms of the macroeconomic situation."
In addition to $25.3 million for the zero-emission locomotives, bond proceeds will fund the purchase of remanufactured diesel locomotives ($34 million); upgrades to the Harvey Transportation Center ($23.8 million); and mid-life bi-level car rehabilitation ($12 million).
They will also fund the replacement and expansion of the Jackson substation on the Metra Electric line ($12 million) and a roof replacement and HVAC upgrade at the Western Avenue coach yard in the Milwaukee district on the city's west side ($22.9 million).
In its rating report, Fitch noted debt service coverage is high in fiscal 2024, with sales tax and PTF revenue covering maximum annual debt service by 12.1x.
Pledged revenues grew 24% in fiscal 2021 and nearly 9% in fiscal 2022, and were up 4.8% year-over-year in fiscal 2024.
"RTA has a rapid front-loaded debt service profile with 54% of outstanding principal being paid off by 2031," Fitch added.
S&P pointed to a shift toward remote work that it said it expects to continue "for the foreseeable future," denting ridership and fare revenue for RTA's service boards. It also noted the so-called fiscal cliff facing public transit in the Chicago area.
"If progress toward a timely and sufficient sustainable funding solution for the RTA's service boards, namely the CTA, is not identified, leading to greater pressure on the RTA and weakening its overall creditworthiness, we could lower the rating," S&P said.
Kenneth Biddison, associate director at S&P, pointed to its last report on the Chicago Transit Authority, which said CTA's ridership recovery rate lags baseline activity level assumptions.
"Our current baseline activity estimates for the U.S. public transit sector indicate recapturing about 75% of pre-pandemic ridership levels in 2024, 80% by 2025, and up to 85% by 2026, or about 5% annual growth as the sector recovers from a still-depressed base," he said.
S&P also noted it might lower the RTA's rating if debt service coverage is diluted materially, either because the RTA issues more debt or because its pledged revenue materially weakens.
Biddison said the RTA has signaled it has no further debt plans this year.
"The RTA has debt policies, debt authorization limits, and additional bonds-test (2.5x) that would influence their decision on issuing additional debt," he said. "I would highlight that as of fiscal 2024 their DSC was approximately 8x, and with debt rolling off in the near-term, coverage is expected to remain very strong and above 9x. It's unlikely that the DSC would be materially diluted from the priority lien revenue streams securing the bonds."
However, he said, S&P also looks at the authority's general operations and creditworthiness. "Because the RTA issues debt to help meet the capital needs of [its] service boards, it is exposed to the operating and financial challenges of the service boards and [that] could have an impact in our view of the general creditworthiness of the RTA," he said.
Regarding the fiscal cliff, Bueso expressed optimism that a solution will be hammered out in Springfield by the May deadline.
"It's still an evolving situation, and what's positive is that we continue to talk to legislators," Bueso said. "We are cautiously optimistic that there will be a solution that means that we don't need to drastically cut transit service for our riders, and that this will be a long-term, sustainable funding solution."
While the end of the legislative session is drawing near, "the frequency of meetings that we at the RTA are having with legislators has only increased, which is definitely a good sign in terms of trying to find a solution," he said.
Bueso also noted the Series 2025A bonds are about capital needs and maintaining a state of good repair, outside and beyond the fiscal cliff conversation RTA is having with legislators.
"We have expressed the need for, in the state of good repair, a multibillion-dollar figure," Bueso said. "This is a small dent in that, toward improving that situation. And we at the RTA are just using the tools that we have available to continue to improve the infrastructure that's important to our transit system in Chicago."
