N.Y. MTA rating stable despite funding uncertainty, says Fitch

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The Metropolitan Transportation Authority’s AA-minus bond rating and stable outlook from Fitch Ratings are not in jeopardy, said the rating agency, despite ongoing funding uncertainty.

Fitch cited the backing of the MTA’s transportation revenue bonds – its workhorse credit – by a gross lien on operating revenues, and said its rating approach “focuses on the ability of those gross revenues to cover debt, given a strong legal and regulatory framework that explicitly prevents the MTA or any of its subsidiary corporations to file for bankruptcy protection so long as TRB debt is outstanding."

The MTA, which carries roughly $39 billion in debt, operates New York City’s subways and buses, commuter rail, and several bridges and tunnels.

Gov. Andrew Cuomo declared a state of emergency in June and MTA Chairman Joseph Lhota announced a subway plan shortly thereafter in the face of service disruptions, triggering a dispute between the state and city over how to fund it.

Cuomo and Mayor Bill de Blasio have an ongoing feud.

Fitch expects political leaders to “will take actions necessary to maintain the safety and reliability of the system without impairing the MTA's financial flexibility."

Lhota told the board Wednesday that he would detail the operating and capital budget implications at next month’s meeting.

Over the summer, Lhota estimated the initial phase of stabilizing the subway system to cost $380 million for capital outlay and $456 million for operations driven by plans to hire 2,700 additional personnel, or about 4% of the MTA’s workforce.

The capital component of the first phase, said Fitch, is “very modest” in relation to the authority's Fitch-estimated $43 billion in debt and retiree liabilities in fiscal 2016. The estimated cost of the second phase, to fund systemwide modernization, signal and track maintenance, new subway cars and safety enhancements, is $8 billion.

Lhota’s reorganization of top management included the addition of Janno Lieber as chief development officer.

Lieber, who ran point on the World Trade Center reconstruction on behalf of Silverstein Properties, could be a behind-the-scenes ace in the hole for the MTA, according to infrastructure expert Nicole Gelinas.

Major MTA projects often run way over cost and behind schedule.

“He’s got experience in working with the construction unions and managing a big project,” Gelinas, a senior fellow with the Manhattan Institute for Policy Research, said on a Bond Buyer podcast. “He’s not a public personality on behalf of the MTA. I hope that being quiet, he’s getting a lot done behind the scenes to cut the costs and do these projects better.”

A key credit strength underpinning the rating, according to Fitch, is the MTA's low financial leverage, which it measures at less than four times net debt and other long-term liabilities-to-gross TRB pledged revenues in both the Fitch base and rating case scenarios. Fitch's leverage metric incorporates amortization of outstanding debt and reported issuance plans.

“The metric does not assume a specific amount of new debt in connection with the subway action plan, as the source and timing of additional funding have not been entirely disclosed to date.”

Fitch expects debt to finance a large portion of the subway action, and the MTA's financial leverage to remain within a range consistent with the AA-minus rating.

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Infrastructure Ratings Transportation industry Joseph Lhota Nicole Gelinas Metropolitan Transportation Authority Fitch New York