New York's Metropolitan Transportation Authority expects to come to market Thursday with a $1.25 billion offering of bonds and notes in two tranches.
The authority, one of the largest municipal issuers with roughly $40 billion of debt, intends to sell $500 million of transportation revenue bonds and $750 million of bond anticipation notes under its transportation revenue credit.
The deals come as political friction over state and city funding levels surrounds the MTA, a state-run authority that operates mass transit in the New York City region.
Rating agencies have cited the MTA's need for a reliable revenue stream.
Ahead of the deal, Kroll Bond Rating Agency revised to negative the outlook on its AA-plus rating.
S&P Global Ratings downgraded the MTA's workhorse transportation revenue bond credit twice last year, landing at A with a negative outlook. Moody's Investors Service in December put the same credit on negative watch while affirming its A1 rating.
Fitch Ratings, while affirming its AA-minus rating on Tuesday, said rising debt and retiree benefit costs will continue to pressure the MTA. Fitch estimates a net increase in debt of roughly $4.5 billion based on issuance plans from fiscal 2019-2022, which authority officials reported in their November financial plan.
The MTA will submit a new five-year capital plan for approval in October, "which Fitch expects will carry a substantially higher cost as the MTA seeks to accelerate repairs and renewals to the transit system."
Last week the MTA board delayed a vote on biennial fare and toll increases. Delays in the fare increases could cost the MTA an estimated $30 million monthly. Authority officials have projected a $1 billion operating deficit within three years.
Other MTA-related controversies include the reconstruction of the $500 million L-train Canarsie Tunnel between Manhattan and Brooklyn. Gov. Andrew Cuomo has proposed a new design that he said would save time and money. It would supersede the plans of the MTA's own engineers and some board members want a vote.
According to Howard Cure, director of municipal bond management for Evercore Wealth Management, the MTA is paying the price for deferred maintenance.
"There's so much of an emphasis on new, bright, shiny projects and so little emphasis — unless something disastrously goes wrong — on basic infrastructure. That's a big concern," Cure said at Tuesday's Bond Buyer National Outlook Conference in New York.
State lawmakers in Albany expect to consider a funding package that could include congestion pricing in Manhattan. Such a move, say supporters, could generate $1.5 billion annually for mass transit, and support about $15 billion of bonds.
"I think if the legislature were to not pass congestion pricing, we would be effectively back at the drawing board trying to figure out what our next step would be, to be quite honest," MTA finance Director Patrick McCoy told board members.
Cost containment, notably on the capital side, is as much a concern as revenue, said board member Scott Rechler.
"The public has lost all confidence in the MTA's ability to actually invest their capital wisely. We've been woefully horrible at it," Rechler said. "One of the challenges when you ask for increases in fares is they feel their money goes to a black hole and they don't see the output of what that investment is going to."
Rechler, who chaired a working group on cost containment, said unbalanced risks, bureaucratic layers and weak project management primarily drive costs and delays.
