New York MTA's planned Fed borrowing a credit negative, Moody's says

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The New York Metropolitan Transportation Authority's planned borrowing of $2.9 billion available to it through the Federal Reserve’s short-term Municipal Liquidity Facility is a credit negative, Moody’s Investors Service said.

“The bond anticipation note borrowing would be credit negative because it would add to the MTA’s already significant load of short-term debt, increasing the agency’s refinancing risk,” Moody’s said in a statement.

Chief Financial Officer Robert Foran said at last week’s board meeting the state-run MTA, which operates New York City’s mass-transit system and is one of the largest municipal issuers with $46.5 billion in debt, would apply for the $2.9 billion.

In August, the MTA sold $451 million in BANs to the facility, which the Fed created as part of the CARES Act that Congress passed in late March when the COVID-19 pandemic escalated.

Only the MTA and Illinois, the lowest-rated state, have used the facility. Prospects are dim for Congress to extend it beyond Dec. 31.

Essentially the MTA has no other option for now other than continued borrowing.

“The issuance of deficit financing bonds is an expected tool that would alleviate near-term cash-flow challenges and allow the MTA to preserve service levels, but it would not resolve the structural budget gaps,” Moody’s said.

New York MTA Chairman Patrick Foye receives COVID-19 test at the Grand Avenue Depot in Queens.

The authority’s primary transportation revenue bond credit has taken multiple hits from Wall Street.

Fitch Ratings on Oct. 23 cut the credit two notches, to A-minus from A-plus and its TRB anticipation notes to F2 from F1. Kroll Bond Rating Agency lowered the bonds to AA from AA-plus. on Oct. 5. In September, Moody’s Investors Service dropped the authority to A3 from A2.

JPMorgan last Thursday repriced the MTA’s $426.3 million of Series 2020E climate bond certified transportation revenue refunding bonds, repricing to yield from 3.59% (about +310 basis points above AAA curves) with a 4% coupon in 2026 to 3.89% (about +272) with a 5% coupon in 2033; a 2045 maturity with an average life of 24.452 years was priced as 4s to yield 4.02% (about +236).

The pandemic has triggered severe declines in the MTA’s ridership and revenue, triggering multiyear budget gaps over the next few years. More than half the authority’s operating revenues come from fares. In addition, other revenue, such as dedicated taxes, have dwindled.

On Oct. 28, the MTA's estimated subway ridership was down 69.7% from the same day in 2019 and Metro-North ridership was down 78%.

Moody’s said that depending on the amount, timing and structure of deficit financing borrowing, MTA's debt to revenue ratio could average more than four times over the next four years, up from 2.7 time in fiscal 2019, which ended Dec. 31.

Fixed costs, said Moody’s, could spike to 41% of total expenses from 33%.

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