New York MTA seeks direct access to Fed borrowing facility
Calling its request “urgent,” New York’s Metropolitan Transportation Authority is seeking direct access to the Federal Reserve's new Municipal Lending Facility program to help cope with massive financial losses related to the COVID-19.
“Investors have shown confidence in MTA’s long-term prospects but remain concerned about near-term risks,” authority Chairman Patrick Foye said in a letter Thursday to Fed Chairman Jerome Powell.
The Fed created the short-term borrowing program in late March after the coronavirus roiled the roughly $4 trillion muni market. While it enables some states and other municipal issuers to borrow directly, the MTA right now cannot, Chief Financial Officer Robert Foran said at Wednesday’s board meeting. The MTA had been in talks about using New York State as an intermediary.
“Based on our current surveillance, we believe public issuance of MTA [transportation revenue bond] notes would result in a premium incurred well in excess of the MLF pricing grid issued on May 11,” Foye wrote. “The MLF will provide that critical bridge to helping us through the COVID-19 pandemic while we continue to meet our mission now, and for the future.”
The state-run MTA is the nation’s largest transit system, operating New York City’s subways and buses, two commuter rail lines and several interborough bridges and tunnels. It is one of the largest municipal issuers, with $45.7 billion of debt across several credits plus more than $6 billion outstanding in its note program.
On Thursday, it upsized its negotiated sale of Triborough Bridge and Tunnel Authority Series 2020A general revenue bonds by $125 million, to $525 million.
Its approved $51.5 billion capital program from 2020 through 2024 “heavily relies on access to the capital markets,” Foye said.
Ridership on subways and buses has declined by upward of 90% since pandemic-related stay-at-home orders and back-door bus boarding took effect in mid-March. The authority has also lost revenue from dedicated taxes. In addition, toll revenue from bridges and tunnels is down 60%.
According to a report by consulting firm McKinsey & Co., the MTA projects a deficit of up to $8.5 billion for the calendar year.
The MTA is in much worse shape than the city it serves, said Nicole Gelinas, a senior fellow at the Manhattan Institute for Policy Research.
“Half of their budget comes from fares and tolls; the other half comes from tax subsidies,” she said. “And their fare and toll revenue on the subway and on the commuter rail system has gone down to being non-existent.”
Rating agencies have downgraded the MTA’s primary credit, transportation revenue bonds, since the pandemic escalated. Moody’s Investors Service and S&P Global Ratings rate the $30 billion credit A2 and A-minus, respectively, while Fitch Ratings and Kroll Bond Rating Agency rate the credit A-plus and AA-plus, respectively.
All four have the credit on negative outlook or downgrade watch.
“Nonetheless, the TRB credit has strong legal protections including a gross first lien on revenue, state prohibition against bankruptcy, and benefits form a state covenant not to impair bondholders,” Foye wrote Powell. The credit structure, he said, has anchored the MTA’s capital program since its inception in 1982.
Foye told Powell the MTA would use the facility for transportation revenue bonds and bond anticipation notes.
“We are a frequent issuer of bond anticipation notes, and the MLF is an ideal vehicle to place our short-term obligations during this crisis,” he wrote. “As an eligible issuer, having access to the Special Purpose Vehicle created under Section 13(3) of the Federal Reserve Act will provide MTA critical access and flexibility to managing its short-term financial needs during the COVID-19 pandemic.”
According to data on the Municipal Securities Rulemaking Board's EMMA website, a block of MTA Subseries 2020D transportation revenue refunding bonds maturing in 2029 that originally priced at 99.294 cents on the dollar with a 3.625% coupon sold to a customer Thursday night at a price of 102.011 cents and a 2.98% yield.
The MTA’s nearly $2 billion offering of Series 2020C climate-certified transportation revenue green bonds during the week of May 4 attracted strong interest from investors but was long dated, with wide spreads. In addition, the COVID-19 pandemic has challenged the MTA’s ability to issue new or roll existing short-term obligations.
“Effectively right now, the short-term market costs as much to borrow as the long-term market,” Foran told the board Wednesday.