CHICAGO - The Chicago Transit Authority received AA-minus and A-plus ratings on its planned $120 million Transportation Infrastructure Finance and Innovation Act loan for the renovation of a major rail transit line.
The AA-minus rating came from Kroll Bond Rating Agency while Standard & Poor's assigned an A-plus and stable outlook to the loan being sought from the U.S. Department of Transportation.
The deal marks the first TIFIA loan rated by Kroll, which also rates the CTA's sales tax bonds, and is the second TIFIA loan sought by the transit agency that provides 1.7 million rides daily.
Proceeds of the loan would help finance a major renovation to a 19-mile stretch of the CTA's Blue Line from downtown to O'Hare International Airport. The project would upgrade tracks, signals, electrical power substations, and passenger stations.
Additional funding will come from CTA sales tax bonds, Regional Transportation Authority of Illinois bonds, state capital aid, and tax increment financing from Chicago.
Loan repayment is secured by all CTA farebox revenues and is considered a secured bond obligation under a master trust indenture. The same features apply to the CTA's first $79 million TIFIA loan that closed last year for the agency's 95th Street Bus and Rail Project; a third TIFIA loan is in the works for railcars.
Kroll "views the CTA's farebox revenue receipts as providing a strong source of payment for the 2015 TIFIA Loan and the other parity obligations," analysts wrote. Annual farebox revenue receipts grew by an annual average of 4.6% between 2003 and 2013.
Kroll said maximum annual debt service from projected future growth in farebox revenues is expected to remain above 25 times with all three TIFIA loans considered.
The master indenture includes a rate covenant requiring the authority to set fares to cover all operating expenses and debt service. Under the TIFIA loan agreement, the CTA must maintain debt service coverage of at least 4 times. The CTA can issue additional parity debt if projected farebox revenues provide at least four times coverage.
The Blue Line loan would be broken into two tranches, one for $77.4 million that matures in 2052 and $42.6 million that matures in 2029 with principal repayment delayed until 2041 on the long piece and 2024 for the short tranche.
Standard & Poor's said its rating of the transaction and the CTA's same issuer credit reflects its view of the CTA's "very strong economic fundamentals," strong market position, strong management, strong financial flexibility and relatively high farebox recovery ratios.
The CTA's overall debt service coverage levels are above 1 times although that figure dipped to below 1 times in 2012. Challenges include weak unrestricted cash levels and a very high debt burden. "The stable outlook reflects our expectation that the CTA will set fares and manage expenses to maintain at least 1 times debt service coverage," Standard & Poor's wrote of the CTA's overall issuer credit rating.
Kroll said the credit benefits from the system's status as "critical to the economic and social infrastructure of the greater Chicago metropolitan area." It's the second largest public transit system in the nation based on ridership.
Ridership has fluctuated in recent years. A 2.7% ridership decline is projected for the past year and then a 1.5% increase for this year, Standard & Poor's said.
In 2013, the most recent audited fiscal year, CTA operating revenues totaled $625 million, up 4.8% from 2012 due largely to fare increases offsetting lower ridership. Farebox revenue alone totaled $574 million. The CTA operating budget also receives funds from sales taxes, city real estate transfer taxes and state aid.
Ahead of a sales-tax backed sale last year, the CTA sought ratings from Standard & Poor's, which has previously rated its sales tax bonds, but dropped Moody's Investors Service in favor of Kroll. Both assigned AA ratings and stable outlooks to the credit.
The CTA's five-year capital program totals $2.5 billion, relying on about $700 million in borrowing including $560 million in TIFIA loans and $145 million in future sales tax backed borrowing, according to budget documents.
The CTA's capital plans include the purchase of more than 800 new rail cars, the Blue Line project and other light-rail renovations, and the purchase of 300 new buses and rehabilitation of another 1,000.
The RTA - which provides fiscal oversight of the CTA -- has warned that the region needs $16.6 billion over the next decade for routine transit maintenance and capital spending with another $19.5 billion needed to cover deferred investment.
