Fitch Downgrades MTA, Triborough Bonds

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Fitch Ratings on Thursday downgraded its rating on $14.3 billion in outstanding revenue bonds issued for New York’s Metropolitan Transportation Authority to A from A-plus, and lowered the underlying long-term rating of Triborough Bridge and Tunnel Authority general and subordinate bonds to AA-minus and A-plus, respectively, from AA and AA-minus.

The rating agency said the MTA downgrade reflects higher than expected near-to-medium financial pressure, while it cited Triborough's "lower levels of financial flexibility and declining debt service coverage."

Fitch assigned an A rating to the MTA’s $99.6 million in transportation revenue variable rate bonds, Series 2011B. It its outlook to stable. Fitch said it will assign short and long-term credit enhanced ratings on the series 2011B bonds shortly.

Moody's Investors Service late Thursday assigned an Aa1/VMIG 1 rating to those same bonds, adding that the Aa1 rating is on review for downgrade.

The financial pressure, said Fitch, stems from increasing operating costs — projected to moderate in growth in the outer years — and pension obligations and escalating annual debt service obligations from expected near-term issuance associated with its capital program.

Fitch said that while the MTA forecasts a surplus of $170 million in 2011 as well as a modest surplus of $4 million in 2012 building to $125 million in 2013, underlying assumptions related to management’s continued ability to implement new cost containment initiatives, growth in operating subsidies, such as regional dedicated taxes, mortgage taxes and the payroll mobility tax, as well as yields on toll and fare increases, are of concern and must still materialize.

“Predicted deficits of $54 million in 2014 and $178 million in 2015 may be greater than estimated if the underlying assumptions on either the expense or revenue side are not achieved in the near term.” Fitch said.

At its last board meeting, on July 27, Finance Committee Chairman Andrew Saul called the MTA’s rising debt “an absolute ticking time bomb.”

Chairman Jay Walder will leave the MTA in October.

“Since Fitch put these credits on negative outlook in late 2009, the MTA has successfully weathered continued difficulties in the local economy, and has taken actions to ensure that it continues to meet its financial obligations and mission," MTA spokesman Aaron Donovan said in a statement late Wednesday.

"While a downgrade is never welcome news, we believe the strength of the credits remains fundamentally secure. We also believe that the impact of the Fitch rating action is largely priced into the market already and that any pricing impact would be minimal.”

Fitch also revised its outlook for Triborough to stable. Affected are $6.9 billion of general revenue and $1.9 billion of subordinate revenue bonds.

Senior lien debt service coverage, said Fitch, is expected to decline and possibly fall below 2 times in the near-to-medium term, while combined senior and subordinate coverage will fall on a sustained basis to below 1.8 times in the near term.

The authority, which was folded into the MTA in 1968, expects to issue $1 billion to $1.2 billion in debt under its current capital plan. It budgets debt service to increase steadily from current levels to above $600 million in 2017 and stay between $600 million and $700 million through 2032. Major projects include work at the Robert F. Kennedy Memorial Bridge, formerly the Triborough Bridge; and the Verrazano-Narrows, Bronx-Whitestone, and Throgs Neck bridges.

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