DALLAS - Dallas Area Rapid Transit's upcoming $740 million sales tax revenue bond sale is getting decidedly mixed reviews, with one upgrade, one downgrade, and one agency maintaining the status quo.
Standard & Poor's raised DART to its coveted AAA, higher than even the city of Dallas, which is at AA-plus. Meanwhile, Fitch Ratings cut DART to AA-minus from AA as Moody's Investors Service maintained its Aa3.
"We've always had split ratings, but we've never had a situation where one went up and one went down," said DART treasurer Nate Hallett. "Obviously, the feeling at DART was that S&P got it right. We were just ecstatic."
The upgrade was based on DART's rapidly growing service area covering 13 cities, strong sales tax collections since 1983, revenues that are coming in at four times debt service, sound management, and a record of success in handling previous economic downturns, Standard & Poor's analysts wrote.
"We believe that DART's service area's broad and diverse retail base will provide resilience in any economic cycle," said analyst James Breeding.
Fitch, on the other hand, wrote that its downgrade "reflects the increased costs associated with DART's light-rail build-out, potential cost increases to the remaining projects through 2018, the need to issue an additional $529 million in debt beyond the $2.9 billion voter-authorized limit, and a move to debt with a 40-year maturity, all of which indicate more limited financial flexibility."
The revenue bonds are expected to price next week with Merrill Lynch & Co. as senior manager. The senior-lien debt will be used to finance DART's aggressive light-rail expansion, while refunding about $350 million of commercial paper.
Faced with rampant construction inflation, DART's board has struggled to come up with a funding formula for the Orange Line from downtown Dallas to Irving and beyond to Dallas-Fort Worth International Airport. When DART suggested delaying construction of the Orange Line, officials in Irving and other cities along the way protested the lack of service after years of providing sales tax revenue. In previous years, cities along other proposed lines have considered dropping out of DART.
"The primary risk to delayed system expansion is expected to be in the public relations arena given the growing anticipation of residents for light-rail service," Fitch analysts Mike McDermott and Steve Murray wrote. "To fund its $9.2 billion 20-year capital plan, DART expects to issue an additional $3.1 billion in senior-lien debt over the next decade."
Under its capital plan DART will have seven times enough revenue for debt service for fiscal 2007, falling to a low of about 2.35 times by 2013, according to Fitch.
Moody's analysts Douglas Benton and Dwight Burns pointed out that DART is continuing its recovery from the last economic contraction in 2002.
"DART is progressing through the early stages of a significant capital and borrowing plan, which presents risks given rising construction costs," the analysts wrote.
