Standard & Poor's Ratings Services said it lowered its rating on Massachusetts Bay Transportation Authority's $3.7 billion parity sales tax bonds outstanding to AA-plus from AAA.
The outlook is stable.
At the same time, Standard & Poor's assigned its AA-plus long-term rating, and stable outlook, to the MBTA senior sales tax bonds series 2015A. The outlook is stable.
"The downgrade reflects our belief that MBTA's potential capital needs could result in substantial additional bonding," said Standard & Poor's credit analyst David Hitchcock.
This could move debt service coverage ratios over time closer to its 1.5x sales tax additional bonds test (ABT), and make the commonwealth of Massachusetts more reliant on its state-guaranteed base pledge (state general obligation rating AA-plus/stable), despite a recent boost in debt service coverage due to the addition of $160 million of state general fund operating assistance as a pledged sales tax revenue.
Recent MBTA operational issues this past winter, an increase the estimated backlog of state of good repair needs to $7.3 billion (not including commuter rail), and potential overruns on a rail line extension, as well as the current expansion of bonding capacity enabled by the pledge of the additional revenue, indicates the potential for an increase in capital bonding.
Although maximum annual debt service (MADS) coverage by pledged sales tax has increased with the new pledge, coverage could potentially drift down again closer to the ABT.
The bonds are secured by a pledge of the greater amount of either a statewide sales tax defined as a 1% statewide sales tax plus a new pledge of $160 million of additional state sales tax per year, or a base revenue amount, guaranteed by the state of Massachusetts.
