MTA bringing $100 million to market in shadow of S&P downgrade

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Operating in the shadow of a downgrade from S&P Global Ratings, New York's Metropolitan Transportation Authority intends to sell $100 million of transportation revenue variable rate refunding bonds on Tuesday.

The competitive Subseries 2002D-2b issuance will consist of London Interbank Offered Rate floating rate tender notes. The MTA has roughly $38.6 billion of debt.

S&P on March 12 downgraded MTA's issuer rating one notch to A-plus and warned, through a negative outlook, of further downgrades if its consolidated net revenue debt service does not improve to more than 1 times.

Marcia Tannian, MTA deputy finance director, said gauging the effect of the lower bond rating on interest rates the authority would get this week is difficult.

"We don't know, and any day in the muni market can vary," she said at Monday's finance committee meeting. "I don't know if we'll be able to correlate it exactly.

"If we came in, for example, in September of 2017 with our refunding and then came back in November, we saw slightly different results even when the ratings were the same."

Nixon Peabody LLP and D. Seaton and Associates are co-bond counsel for the sale and Public Resources Advisory Group and Backstrom McCarley Berry & Co. LLC are the co-financial advisors.

S&P cited MTA estimates and forecasts, and its own calculation of "potentially inadequate consolidated net debt service coverage for unaudited fiscal 2017, budgeted fiscal 2018 and forecast 2019, given rising operating expenses and debt service requirements without corresponding growth in gross revenues."

The downgrade brings S&P's rating of the MTA in line with the A1 of Moody's Investors Service. Fitch Ratings assigns an AA-minus rating to the MTA's workhorse revenue bond credit, while Kroll Bond Rating Agency rates it AA-plus.

According to S&P, the MTA's recent rolling four-year financial plan contained smaller cash surpluses.

Given technical adjustments and other changes, the authority's February 2018 plan projects revised year-end cash balances as $118 million, $9 million and $4 million for 2017, 2018 and 2019, respectively, with negative balances projected for 2020 and 2021.

The MTA, a state-run authority that operates New York City's mass transit system, has long been embroiled in a city-state dispute over funding.

Gov. Andrew Cuomo last June declared a state of emergency for the system amid a rash of signal malfunctions, breakdowns and delays on subways and buses.

Cuomo has committed state support for half of an estimated $836 million for first-phase triage of a subway improvement plan. Mayor Bill de Blasio has resisted, saying the MTA is a state agency and Albany should replenish the roughly $400 million it has taken from dedicated transit accounts to balance the state’s general fund.

City Council Speaker Corey Johnson, though, favors the city contributing more in exchange for stringent city oversight.

The authority 2015-2019 capital program amounts to $32.5 billion, of which about $3 billion is self-funded through bridge and toll revenue. The city, under a deal that Cuomo brokered, is contributing $2.5 billion to that plan.

The MTA recently launched a "genius challenge" at Cuomo's behest, intended to solicit ideas to modernize signalizing, capacity and communications. Eight corporations won cash prizes.

"We're going to actively progress those winning entries and still look at some of the others as well," New York City Transit president Andy Byford said Monday. "They certainly are all of extreme interest to us and we think they've got real merit."

In addition, the MTA and the business group Partnership for New York City initiated the Transit Innovation Partnership, a public-private collaboration to which the partnership has committed $1.5 million.

TIP's executive director, former Cuomo chief digital officer Rachel Haot, will work with MTA President Patrick Foye on the venture. Ladder Capital Finance LLC chairman Alan Fishman will chair the partnership's advisory board.

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Variable-rate bonds Ratings Sell side Andy Byford Metropolitan Transportation Authority S&P New York