New York MTA, downgraded by Moody’s, seeks more federal aid

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New York’s Metropolitan Transportation Authority received a downgrade on its primary credit from Moody’s Investors Service on Thursday, as it asked for further federal aid and put its five-year capital program on hold.

S&P Global Ratings and Fitch Ratings already downgraded the MTA’s primary transportation revenue bond credit over the past month.

Moody’s, in the latest capital markets hit to the state-run authority, lowered its rating on the MTA's transportation revenue bonds to A2 from A1, citing the financial hit the MTA has received from the COVID-19 pandemic. Moody’s also revised its outlook to negative from rating under review.

The move affects $22.8 billion in TRBs and $7.5 billion of TRB bond anticipation notes. Moody’s began its review on March 19 on the MTA’s revenue shortfall prompted by “the very sharp decline in ridership and toll revenues since the outbreak of coronavirus in the U.S.”

Earlier Thursday, MTA Chairman Patrick Foye confirmed a letter to the state’s congressional delegation seeking another $3.9 billion in federal funding as Congress considers its next COVID-19 relief package.

"We need substantially more help, and we need it now," Foye told reporters Thursday, shortly after sending a request to the state's congressional leaders.

"We need substantially more help, and we need it now," MTA Chairman Patrick Foye said.

The state-run MTA, meanwhile, has put its five-year, $51.5 billion capital program on hold, and is using earmarked funds to stay solvent.

The authority, which operates New York City’s mass transit system and is one of the largest U.S. municipal bond issuers, now projects the full impact of the pandemic to reach up to $8.5 billion in 2020, based on an analysis by consulting firm McKinsey & Co.

Chief Financial Officer Robert Foran told reporters that increased federal assistance will help reassure investors.

“The bond market has been very supportive of the MTA going back for decades,” Foran said. “They provided much-needed access to capital to restore a system that had been allowed to deteriorate.”

According to data on the Municipal Securities Rulemaking Board's EMMA website, a block of MTA Series 2010D transportation revenue bonds maturing in 2040 that originally priced at 97.927 cents on the dollar and a 5.25% coupon sold to a customer at midday Thursday at a price of 101.258 cents and a 6.46% yield.

The MTA issued its first capital plan in 1981.

Last month, the MTA secured nearly $4 billion in federal funding through the federal CARES Act. Some critics suggested at the time the MTA should have asked for more.

The worsening of the coronavirus crisis in New York has dwarfed initial estimates, Foye said. Ridership has plummeted 93% on subways, 95% on Metro-North Railroad and 97% on the Long Island Rail Road with bridge and tunnel crossings declining 62%.

Podcast: "What looms for New York MTA?" The Bond Buyer's Paul Burton and Rachael Fauss from Reinvent Albany discuss.

The state-run MTA has about $45 billion of debt, including special credits.

According to Foye, congestion pricing is “still very much alive” despite delays in coordinating environmental studies with the U.S. Department of Transportation. Signal modernization is still on, said the authority’s capital construction chief, Janno Lieber.

Modernizing signals will move trains more quickly and minimize risks of crowding post-pandemic, said Nicole Gelinas, a senior fellow with the Manhattan Institute for Policy Research.

“Even with less revenue, they’re going to have to keep this in mind, that the faster they modernize the subway signals, the more trains they can run and keep them less crowded and start to rebuild their ridership,” she said.

The MTA continues to operate during the pandemic.

“The MTA has a purpose that is so central to New York that no governor could let it really fail," said Mitchell Moss, director of New York University's Rudin Center for Transportation and Management. "In addition, it’s one of the largest issuers of tax-free municipal debt, so if the municipal debt of the MTA turned out to be of diminished value, every state and every county would have their interest rates go up.

“We can’t even maintain our healthcare system without the MTA, because that’s how people get to work.”

According to Municipal Market Analytics, current rating actions more reflect short-term unknowns rather than indications of changes in long-term issuer credit quality.

"The rating actions on the MTA are illustrative," MMA said. "The recent downgrades of the MTA’s rating by a notch or two in mid-investment grade territory captures neither the opinion that there is an imminent risk to the issuer’s solvency nor that it is too big and important to fail and thus will receive the extraordinary support needed."

Updated to include Moody's downgrade.

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