Markets ripple with news of MTA bailout request

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News of the request by New York's Metropolitan Transportation Authority for a $4 billion federal rescue package triggered a flurry of market activity Wednesday.

The move by the MTA, amid plummeting ridership during a worsening COVID-19 pandemic, also triggered questions surrounding the length of the crisis itself, the severity of the short- and long-term hit to the authority, any level of federal support and the nationwide ripple effect on other transit agencies seeking relief.

Empty subway turnstiles Tuesday reflect the sudden drop of ridership on all of the MTA's transit operations.

"There's concern in the market but not panic," Howard Cure, director of municipal bond research for Evercore Wealth Management, said Wednesday, one day after MTA Chairman Patrick Foye made the bailout request in a letter to New York's congressional delegation, citing plummeting ridership amid measures to limit the spread of COVID-19 by encouraging people to stay home.

Among the more actively traded issues on Wednesday were the Triborough Bridge and Tunnel Authority’s Series 2017B general revenue refunding bonds issued for MTA’s bridges and tunnels, according to data from the Municipal Securities Rulemaking Board.

The 5% bonds of 2034, originally priced at 118.026 cents on the dollar to yield 2.96%, were trading at a high price of 115.742 cents, a low yield of 2.576%, in nine trades totaling $165,000. On Tuesday, the 5% bonds were trading at a high price of 110.724, a low yield of 3.304%, in three trades totaling $65,000.

The MTA, the nation's largest mass-transit system and one of the largest U.S. municipal bond issuers, carries $45 billion of debt including special credits. It operates New York City’s subways and buses, Metro-North and Long Island commuter rail lines, and several interborough bridges and tunnels.

"As essential as the MTA is, if people are not riding it, it's not a good thing," Cure said. "From a bondholder perspective, one positive is that farebox revenues are not their only source. There are revenues from sales taxes, payroll taxes."

Still, fares account for roughly half of the MTA's operating revenues, one of the highest ratios nationwide.

"If I were a bondholder, I wouldn't be panicky, but a little concerned, maybe middle concern," said Nicole Gelinas, a senior fellow with the Manhattan Institute for Policy Research. "In the MTA's 52-year existence, this is probably its biggest single challenge. Even after 9/11, they got the system up and running."

Dealing with the pandemic has meant Gov. Andrew Cuomo and Mayor Bill de Blasio urging people to avoid crowded subways and work at home wherever possible as part of a social-distancing strategy. Based on recent daily reports, Foye said, ridership has dropped about 60% on subways, 90% on Metro-North Railroad and 67% on the Long Island Rail Road, as well as 49% on buses.

The MTA repeated those numbers in an event disclosure posted to the Municipal Securities Rulemaking Board's EMMA website Wednesday. In the disclosure, the MTA also said it would fully draw down its $1 billion of commercial bank lines of credit Friday.

Add to that the massive new cost of disinfecting the 472 subway stations and countless subway and commuter trains, and buses in the system.

"They're trying to maintain full service while having this decline," Gelinas said. "They have to think about cutting service. They can't survive.”

Gelinas added that the continued dropoff — including tourists staying away for the summer — could force the MTA to weigh full service against other needs, including payments to bondholders.

According to Foye, the nearly $4 billion represents the MTA's losses over the year, assuming ridership drops continue, even without the expected collapse of the more than $6 billion in state and local taxes dedicated to the authority.

Mitchell Moss, director of New York University's Rudin Center for Transportation, sees the hit to the MTA on the operating side.

"The bonds are going to be fine," Moss said. "The MTA has terrific credit and the bondholders will benefit from all those tolls. You will still see people coming in and out of the region for deliveries. The real challenge is to the operating funds of the MTA."

The crisis will affect the MTA beyond farebox revenue, according to Moss.

"This is much more than just reduced ridership," Moss said. "Property tax revenue is tied to real estate transactions, which aren't happening. They're also dependent upon the payroll mobility tax and many people aren't working." Taxi-related fees, which also benefit the MTA, are way down, Moss added.

One possible option for the MTA, according to Cure, is for the Federal Transit Administration to allow all federal money for capital projects to go toward the operating budget. "Historically the federal government has not been a big fan of the MTA, but now there could be a greater level of bipartisanship," he said.

Under normal circumstances, the markets would frown upon the stop-gap move of shoring operating funds with capital. "It's a dangerous practice but these are extraordinary times," he said.

Gelinas said any federal aid should come with as few strings attached as possible. ‘I don’t think that the time to tie aid to cost reform is right now,” she said. The MTA had begun executing a cost-cutting transformation plan, which state lawmakers required as part of a funding package that accompanied the fiscal 2020 budget passage last April.

In his letter, Foye said New York produces 10% of the national economy and that the nation will need a strong New York to rebound from the current crisis. He added that New York sends Washington $35 billion more annually than it receives in federal assistance.

Eight advocacy groups Wednesday called for approval of the federal aid package and asked the U.S. Department of Transportation to approve congestion pricing for Manhattan, which could infuse the MTA with $15 billion of funds through bonding.

"It is more important than ever that the MTA be on solid footing for its rebuilding and modernization needs, given the hit it will be taking to its operating budget," they wrote in a letter to the congressional delegation. The groups include Tri-State Transportation Campaign, Reinvent Albany, Permanent Citizens Advisory Committee to the MTA and Regional Plan Association.

Escalating debt has long been a concern at the MTA. Authority officials recently warned that MTA debt over the next few years could spike to nearly $50 billion.

-- Chip Barnett contributed to this report.

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