CHICAGO — The Regional Transportation Authority of Illinois plans to enter the market later this spring with a cash-flow issue that could reach up to $400 million depending on the fate of its request to extend an expiring short-term borrowing authorization.
That authorization has been crucial in helping the agency weather chronic state aid payment delays, officials said. Structural details are still being worked out but the sale may include floating-rate and fixed-rate debt with a final maturity of up to two years. It could include a mix of notes and commercial paper and may include subordinated debt, said Grace Galluci, the RTA’s chief financial officer.
JPMorgan is senior manager and placement agent with Bank of America Merrill Lynch, BMO Capital Markets and Loop Capital Markets LLC serving as co-managers. Siebert Brandford Shank & Co. is financial adviser and Katten Muchin Rosenman LLP is bond counsel.
If the RTA taps its full $400 million of short-term borrowing authority, about $150 million would represent new money and the remainder would pay off $265 million of outstanding notes and paper. The authority — which oversees the Chicago Transit Authority, Metra commuter rail and Pace suburban bus service — has managed chronic state-payment delays through short-term borrowing.
It may have up to $400 million of outstanding short-term debt under a working cash note and commercial paper program, which has rolling maturity dates.
Illinois Gov. Pat Quinn signed legislation in June 2010 that increased to $400 million from $100 million the amount of cash-flow debt the RTA is permitted to have outstanding. The authorization expires at the end of June this year.
When the authorization was increased in 2010, the state was $323 million behind in aid payments. While the amount fluctuates, Illinois is $367 million behind.
“The state has been reliable in sending us the money over the long term, but absolutely the extra authorization is what’s really helped us manage” through the delays, Galluci said.
The agency has requested a two-year extension at the same $400 million level and hopes by mid-month to know whether lawmakers and Quinn will act on it.
A spokeswoman for state Senate President John Cullerton, D-Chicago, said Tuesday that he had not yet been briefed on the subject. The General Assembly is trying to wrap up its session by the end of the month with a crowded plate of pension and Medicaid reforms along with the fiscal 2013 budget.
The RTA is far from the only agency impacted by payment delays stemming from Illinois’ chronic budget woes. The state is on pace to close out the current fiscal year June 30 owing $9 billion in unpaid obligations, according to the state comptroller’s office.
If it wins the extension of its existing short-term borrowing authority, the RTA could trim the size the size of its upcoming borrowing because it would lessen the need to roll over existing debt.
The agency will seek long-term ratings on the program. The RTA’s share of sales taxes and its state aid from Illinois are pledged to bondholders. Under the senior lien, sales tax revenues must meet a 2.5 times debt-service coverage test before additional bonds can be sold.
Fitch Ratings earlier this year upgraded the credit to AA but assigned a negative outlook. Moody’s Investors Service rates the RTA Aa3 with a stable outlook. Standard & Poor’s assigns a AA and a stable outlook. The RTA has about $2 billion of general obligation bonds and has exhausted most of its state-authorized long-term borrowing capacity.
Fitch’s upgrade came as part of its review of tax-supported debt enterprises with an increased focus on operating risk and other factors. Fitch left a negative outlook on the rating, reflecting “the continuing financial pressure both on operations and capital spending due to the delinquent state payments and the state’s persistent financial challenges.”
The state aid comes in the form of a 30% match on sales taxes and certain real estate transaction taxes in Chicago.
The credit benefits from improving sales tax collections — up by more than 5% in 2011 — and the essential transit services provided by the RTA’s train and bus systems with 2.6 million riders daily. Fare box revenue has also been recovering due to increased ridership after declines through 2010.
“I think we’ve turned the corner” on operating pressures, Galluci said. The 2012 budget totaled $3.9 billion, including $2.5 billion in operating expenses and $1.4 billion for capital.
Looming pressures in the next year include the impact of new labor agreements at the Chicago Transit Authority. The Regional Transportation Authority is also still trying to resolve a dispute with several municipalities over their role in helping online retailers avoid about $100 million in RTA sales taxes through a sales tax loophole.
On the capital side, in its 2012 budget the agency was able to halt the practice of dipping into capital funds to cover operating deficits. The RTA has received commitments from Illinois for $1.8 billion from the $2.7 billion transit authorization in the state’s ongoing $31 billion capital budget.
The RTA’s current five-year capital program totals $3.8 billion with federal sources accounting for 41% of funding, state sources 26%, carryover proceeds 18% and CTA bond proceeds 13%. Most of it will go to buy new rolling stock and maintain the existing system.
The funds fall far short of what’s needed, the RTA has warned, and the struggle to identify revenue sources remains especially given uncertainty over the federal transportation funding package pending before Congress. “The transit system still needs significantly more funding for further maintenance, enhancement and expansion,” the RTA said in a statement.
An asset condition report warned the system has a 10-year capital need of $24.6 billion to achieve a state of good repair. The need for new funding sources prompted the CTA recently to hire financial advisers to explore the use of public-private partnerships.