New York’s Metropolitan Transportation Authority approved the sale next month of $500 million of dedicated tax fund bonds at its finance committee meeting yesterday. Pending approval by the full board tomorrow, most or all of the bonds will be marketed as taxable Build America Bonds.
JPMorgan will lead manage the sale of the bonds, which will have maturities of up to 30 years.
Also next month, the MTA plans to market up to $700 million of revenue anticipation notes that will mature in December. The DTF bonds are backed by primarily by petroleum and motor-vehicle related fees and taxes collected by the state on behalf of the MTA. The Rans were approved last month and will be secured primarily by revenue from a payroll tax imposed on employers in the 12 counties served by the authority.
Hawkins Delafield & Wood LLP is bond counsel and Goldman, Sachs & Co. is financial adviser on the deals.
Dedicated taxes collected by the state and reported in February have come in below forecast, according to MTA documents. Year-to-date petroleum business taxes this month were $99.9 million, $3.7 million lower than forecast. Dedicated real estate taxes have come in below forecast so far this year at $69.5 million, $5.1 million lower than budget. Revenue streams enacted under last year’s bailout package — the payroll tax and a slate of motor vehicle related fees — have underperformed, coming in at $327.7 million so far this year, $99.1 million below budget.
Moody’s Investors Service downgraded the MTA’s transportation revenue bonds to A3 from A2 on Feb. 3 after the authority disclosed that the state had revised downward by $350 million projected revenue from the payroll tax in the current year and $200 million in future years.
The downgrade came the day the MTA was supposed to be in the market with $657 million of bonds. The pricing was delayed by a day and the MTA sold $607.8 million of BABs at a true interest cost of 4.33% and $49.1 million of tax-exempt bonds at a 2.99% TIC on Feb. 4 . Gov. David Paterson has since proposed a revision of the tax intended to return revenue to previously projected levels.
Fitch Ratings rates the DTF credit A-plus with a negative outlook and Standard & Poor’s rates it AA with stable outlook. Moody’s does not rate the DTF credit.
One bright spot for the MTA recently has been lower than budgeted debt service costs, in part because of low rates on its portfolio of variable-rate debt. Board member Doreen Frasca said the authority needs to have a contingency plan to deal with the prospect of rising rates since the Federal Reserve raised the discount rate last week.
“We’re living in an enchanted forest, folks, with interest rates,” Frasca said. “It’s not going to last forever ... we’re going to start to probably see the short end of the yield curve move up, relatively soon.”
MTA finance director Patrick McCoy said after the meeting that the authority will continue to watch its portfolio on a daily basis with particular emphasis on auction-rate securities and variable-rate demand bonds and would implement a contingency plan if interest rates on those spiked.
