DALLAS — Dallas Area Rapid Transit lost its AAA rating from Standard & Poor’s Friday as analysts assigned DART’s upcoming $825 million bond deal a AA-plus.
A rating from Moody’s Investors Service was pending Friday. Moody’s rated DART’s senior-lien tax-exempt bonds Aa3 last year.
The downgrade affects $2.6 billion in outstanding debt and comes as DART struggles to match revenues to its light-rail expansion that will be funded with this week’s issue. The deal will include $725 million of taxable Build America Bonds with final maturities of 2048 and $100 million of tax-exempt debt.
“The ratings are based on an acceleration in the system’s bonding program, which, along with recent declines in sales tax revenues, has reduced expected coverage levels,” said Standard & Poor’s credit analyst Russell Bryce.
Bank of America Merrill Lynch is the senior underwriter. Co-seniors include Loop Capital Markets LLC, M.R. Beal & Co., and Siebert Brandford Shank & Co. RBC Capital Markets and Southwest Securities Inc. are co-managers.
Vinson & Elkins LLP and West & Associates are co-bond counsel. The financial adviser is Estrada Hinojosa & Co.
The upcoming DART bonds will be backed by a first lien on passenger revenue as well as the agency’s 1% sales tax levied within the 13 member cities. Previous bonds were secured only by the sales tax.
Dallas-area voters approved the 1% sale tax in 2001. The measure restricted DART to $2.9 billion of debt backed by revenue from the tax. But the 2009 Texas Legislature approved a bill that allows DART to issue additional debt if the support includes other revenue sources. The agency can issue another $140 million of debt supported solely by sales tax revenue.
In fiscal year 2009, sales tax collections declined by 8.4% to $378.4 million. For fiscal 2010, officials project another slight decline in collections to about $375 million, according to Standard & Poor’s. That revenue would be two times maximum annual debt-service coverage after the issuance of the Series A BABs and Series B tax-exempt bonds, analysts said.
Including pledged farebox revenues, fiscal 2010 revenue is estimated to provide 2.5 times debt service.
“However, because DART relies on sales tax revenues to support operations, we believe that it would be unlikely that farebox revenues would be available for debt service if sales tax collections declined below the level of required debt service payments,” Bryce wrote in his ratings report. “Current DART projections for the next five fiscal years assume a modest recovery in sales tax receipts to $394 million (about 5% growth) in fiscal 2011, and a 5.8% average annual growth rate through fiscal 2015 to $494 million.”
DART’s 700-square-mile service area serves 2.4 million people in portions of Dallas County and Collin County. Total ridership including bus, high-occupancy vehicle lanes, and light-rail approached 117.5 million in fiscal 2009, representing a slight increase from the previous year.