The Southeastern Pennsylvania Transportation Authority's bondholders face only minimal risks from a six-day transit strike in Philadelphia that ended early Monday, according to Moody's Investors Service.
SEPTA's contract with the Transportation Workers Union Local 234 expired on Oct. 31 resulting in the union's 4,700 workers going on strike until a new tentative five-year deal was announced at 5:15 a.m. Monday. The work stoppage halted most transit service in Philadelphia, though regional commuter rail service was not impacted since it is operated under a separate labor contract. The agreement is subject to a ratification vote from TWU Local 234 members and approval from SEPTA's board, with service expected to resume Tuesday morning.
"Despite the loss of revenue during the work stoppage, the risks confronting SEPTA's bondholders are remote and are several steps removed from the financial effect of the strike on SEPTA or the city," said Moody's analyst Dan Seymour in report issued Monday, but compiled before the new labor agreement was announced. "SEPTA's $400 million of bonds fit into two security types, both of which are structured to insulate bondholders from SEPTA's finances or operations."
Moody's rates SEPTA bonds at A1 with a stable outlook. Seymour noted that SEPTA's capital grants receipts bonds are secured by Federal Transit Administration reimbursements. The FTA has already agreed to the reimbursements with the agreement valid through the final maturity of the bonds.
"The main risk facing these bonds is that the U.S. Congress would not appropriate transit funds," said Seymour. "We do not envision that SEPTA's financial position might disrupt the transmission of these formulaic reimbursements to bondholders."
Under state law Pennsylvania SEPTA's revenue bonds are secured by statewide state-administered taxes. Seymour said no matter what happens to SEPTA from the strike, Moody's expects that Pennsylvania "will preserve bondholders' interest in the pledged revenues." By law, Pennsylvania collects the taxes and deposits them into the Public Transportation Assistance Fund with SEPTA entitled to around 70% of that money that helps secure the revenue bonds.
"Only in the most chaotic of scenarios do we imagine that SEPTA's troubles would imperil the revenue bonds, which we consider to be part of Pennsylvania's $15 billion of net tax-supported debt," said Seymour. "The state administers the taxes that secure the bonds and the state treasurer pays debt service directly to the trustee."