The country’s largest mass transit system will go to market with $600 million of transportation revenue bonds on Tuesday, with retail pricing on Monday.
The transaction is the second part of a $1 billion financing by New York’s Metropolitan Transportation Authority, which serves a 5,000-square-mile service area and a population of 14.6 million people.
The first part — $400 million of bonds — was issued last month. The financing was approved in late January by the MTA’s finance committee and full board, and will be used for approved transit and commuter capital projects.
“It could be any number of capital projects financed, whether it’s work on the Second Avenue subway or, you name it,” said finance director Patrick McCoy.
The authority’s massive capital program totals around $24 billion for the years 2010 to 2014.
Major projects the MTA is currently working on include its Second Avenue subway line, the “East Side Access” project, the Flushing Line extension and the Fulton Street Transit Center.
The Second Avenue subway project will include a two-track line along Second Avenue from 125th Street to the financial district in Lower Manhattan and will be built in four phases. The MTA expects the first phase to take 45 months to complete.
The East Side Access project will connect the Long Island Rail Road’s Main and Port Washington lines in Queens to a new terminal beneath Grand Central Terminal in Midtown.
The Flushing Line extension project will extend the line to 34th Street and 11th Avenue and the Fulton Street Transit Center will improve the connections between six existing subways in Lower Manhattan.
The MTA is also working on ongoing track work throughout its subways.
According to the agency’s website, the largest funding sources for its capital program include federal funding, MTA bonds, and future and state local funding.
Last month, the authority purchased 300 new rail cars for $600 million, financed by $306 million in federal funds, as well as other pending and future federal grants.
The MTA has reduced its capital program from $28 billion in an effort to “sharpen the focus of the program to ensure the delivery of specific customer benefits for the lower cost,” the agency’s website said.
Maturities on the bonds offered Tuesday, which will be structured as serials and terms, will range from two to 35 years. McCoy said proceeds from the 35-year bonds would likely go toward work on the Second Avenue subway, as it’s a longer-term project.
Wells Fargo Securities is lead underwriter and Hawkins Delafield & Wood LLP is bond counsel.
Lamont Financial Services Corp. is financial advisor.
With medium-grade credit ratings of A2 by Moody’s Investors Service and A by Standard & Poor’s and Fitch Ratings, the bonds will likely offer attractive yields.
And right now, “yield is king,” said Dan Genter, chief executive officer and chief financial officer of RNC Genter Capital Management.
“They’ll probably have to pump the yield a little bit, but obviously it’s the biggest transit system in the country and it’s not going away,” he said.
If a quality issuer or a known entity is offering yield, the reception is going to be good, he added.
In its deal last month, yields on the MTA’s revenue bonds ranged from 0.26% with a 3% coupon in 2012 to 4.4% with a 4.25% coupon in 2039.
The MTA’s subway system has an average daily ridership of 5.2 million and all three credit rating agencies cite the authority’s importance to the economy of the New York region. Standard & Poor’s called it the “dominant mass-transit provider” in the metropolitan area.
S&P lists the MTA’s ridership trends, diverse revenue stream, and the strong support from the state and city as strengths. All three rating agencies assign stable outlooks.
Standard & Poor’s said the outlook reflects the expectation that the MTA will achieve a structural balance each year despite near-term funding and forecasts of out-year gaps.
Despite these strengths, the authority’s large, ongoing capital program is financed largely by debt, and it faces continuing pressure to maintain structural balance.
“The MTA faces a challenging environment as it manages its operations and a substantial capital plan,” Moody’s said in a report.
In addition to issuing more debt, the MTA will look to continued efficiencies, pay-go funding, funding from local partnerships, and the sale of assets to support its sizeable maintenance and infrastructure expansion program, Moody’s said.
The authority also has swaps outstanding with JPMorgan Chase, UBS AG, and AIG Financial Products Corp. The swaps pose potential liquidity threats, Moody’s reported, and have a negative mark-to-market valuation of $344.6 million.
On the positive side, Moody’s said the MTA has “sound overall financial management with adequate flexibility to manage” the complex portfolio of variable-rate debt and swaps.
The agency will continue to issue bonds throughout the year, with its next scheduled issue being $250 million of Triborough Bridge and Tunnel Authority bonds, coming in late May or early June.
The issue was authorized by the MTA’s board last month.
McCoy said the authority will have a remaining need for new money of around $1 billion later in the year.