CHICAGO — Fitch Ratings hit St. Louis’ public transit agency with a downgrade late last week as it continues to work on details of a debt restructuring and reduction plan planned for next year that would bolster its long-term fiscal health.
Fitch downgraded the Bi-State Development Agency of Missouri-Illinois Metropolitan District’s $322 million of senior-lien bonds from 2002 and 2007 one notch to A-minus from A.
Fitch’s review and downgrade follows its revisions last year to its methodology on the tax-supported debt of public enterprises, with an increased focus on operating risk and other factors.
Officials from the transit agency, known locally as Metro, did not return calls for comment.
A sales tax increase in 2010 helped stabilize the agency’s operations and allowed it to restore service cuts, but it faces a $70 million payment on a 2013 bullet maturity from a 2010 issue of subordinate bonds. Another $75 million is due in 2025. Pledged revenues will fall short of what’s needed to cover next year’s bullet, prompting Metro’s restructuring needs.
The agency is hoping to restructure its debt portfolio next year, spreading out repayment of the 2013 and 2035 bullet payments. All of the debt would be issued under the agency’s senior lien. While senior debt-service coverage could decline below its current 1.2 times ratio, officials plan to more rapidly pay down the debt load.
Plans call for retiring an additional $20 million of debt annually between 2013 and 2028 with sales tax revenues. The proposal requires the approval of the St. Louis City Council and St. Louis County.
As part of the restructuring, Metro may also seek approval to pledge funds from its 2010 sales tax increase to bondholders. Currently, the bonds are payable solely from an annual appropriation by the city and county of revenues collected from the older 0.25-cent Prop M sales tax, which Fitch warned is “vulnerable to shifts in the economy.”
The agency’s fiscal challenges drove it to make steep service cuts in 2009 as pledged sales-tax receipts dropped by 5.1%. They declined by 6.4% in 2010, but returned to growth, rising by 2.3%, in fiscal 2011 due to the recovering economy. Fiscal 2012 results through September show a 6.3% growth rate.
In 2010, county voters approved Prop A, a 0.50-cent sales tax increase to help restore service cuts and fund expansion projects. That vote, in turn, triggered a 0.25-cent increase within city boundaries. The new tax generated $67 million in fiscal 2011 and is expected to raise an additional $80 million in 2012.
Though the new funding has eased the strain on operations, it is not currently pledged to bondholders. Any change in the pledge, which would bolster debt-service coverage ratios, also would require city and county approval.
Moody’s Investors Service last summer affirmed Metro’s A2 rating on its senior-lien debt but downgraded its rating on the $70 million 2013 bullet issue one notch to A3 due to “market access risk” and the anticipated shortfall in pledged revenues to cover repayment. The agency has said it could tap reserves in the event it can’t access the market.
The agency used the bullet maturity structure as a short-term solution. The bonds refunded variable-rate debt issued in 2005 to cover the cost of overruns on its 8.2-mile Cross County light-rail expansion project. Metro had been banking on paying off the 2005 bonds with a settlement anticipated from its lawsuit against the project developers. The agency lost its lawsuit.
In 2010, Metro’s finance team had hoped to undertake a permanent restructuring as a letter of credit expired, but that goal became difficult with existing sales taxes dollars floundering and a public mandate to keep service intact.
The agency owns and operates the St. Louis metropolitan area’s public transit system, which served 48 million riders in 2010.
Metro’s near-term capital plans call for establishing a bus rapid transit line as an extension of its MetroLink light-rail system.