CHICAGO – The Illinois Regional Transportation Authority will take bids Tuesday on $150 million of working cash notes that help the agency manage cash flow amid ongoing state aid payment delays.
The taxable notes mature May 4, 2018. A.C. Advisory Inc. is municipal advisor to the RTA on the deal and Katten Muchin Rosenman LLP is bond counsel.
Ahead of the sale Fitch Ratings and Standard & Poor's affirmed their AA ratings on the notes and the RTA's outstanding long-term bonds. Both assign a stable outlook.
Moody' Investors Service was not asked to rate the notes but rates the RTA’s long term debt Aa3. It shifted the agency's outlook to negative last year, citing exposure to the state government's continuing credit deterioration which could impact the timing of aid payments and size after Gov. Bruce Rauner proposed cuts.
The notes are backed by the RTA's general obligation pledge with revenues coming from its allocation of sales tax collections and public transportation revenue, which is a statutorily-required 30% state match of regional sales taxes. It also includes a portion of the real estate transfer tax collected in Chicago on property sales.
"Our rating on the 2016C notes incorporates our view of the authority's cash flow projections that show sufficient coverage to make the scheduled principal payment once the proceeds of the notes are included," said Standard & Poor's analyst Jennifer Boyd.
The RTA benefits from healthy growth of 4% in sales tax collections from 2014 to 2015. Overall, pledged revenue provides at least seven times coverage of debt. The RTA's service boards – the Chicago Transit Authority, Metra commuter rail, and Pace suburban bus service – serve 2.5 million riders daily.
The state remains behind on aid payments but they are not as severe as in past years despite the state's $7 billion bill backlog and lack of a fiscal 2016 budget. Delays peaked in 2012 when the state was $396 million in the arrears, compared to a current level of $287 million.
"A return to chronic delinquencies could adversely affect system maintenance, and present ongoing risk to the authority's financial health," Fitch wrote.
Sales tax revenues accounted for 66% of total revenues in 2014 followed by PTF and various state payments, which accounted for the remaining 34%. After payment of debt service, remaining revenue subsidizes the operations of the three service boards.
The RTA's $400 million in short term borrowing powers help offset liquidity struggles due to the budget impasse and payment delays. In addition to the working cash notes being sold Tuesday, the agency in January directly placed $150 million of subordinate working cash notes with Wells Fargo Bank. The notes were issued using a revolving credit line structure that allows the agency to draw down funds as needed. It currently has $35 million outstanding, according to the offering statement on the new issue.
The authority may seek state permission to add a $100 million line of credit to supplement its working cash note program, Fitch said.
Capital funding remains the agency's most severe long term challenge.
The RTA's service boards have a backlog of nearly $20 billion in needed work with its 10-year capital program requiring $36 billion to bring the system to a state of good repair. It says roughly 43% of CTA assets are in worn or marginal condition.
The RTA has limited remaining state-authorized bonding authority and talk of a new state capital budget has been overshadowed by the political gridlock that has prevented passage of a fiscal 2016 budget. The current five-year capital plan totals $3.9 billion.