KBRA Affirms AA Rating on the MTA’s Transportation Revenue Bonds; Outlook is Stable
31 Oct 2023 | New York
KBRA affirms the long-term rating and Stable Outlook on the Metropolitan Transportation Authority’s (MTA's) outstanding Transportation Revenue Bonds. The affirmation reflects the continued gradual post-pandemic recovery in MTA transit and commuter rail ridership, and the Authority’s significantly improved operating budget, which, per MTA’s July Financial Plan 2024-2027 (the "JFP"), is balanced annually through 2027 with the resolution of previously projected operating deficits totaling $6.535 billion. The rating further reflects the strength of the gross pledge of Transportation Revenue Bond (TRB) revenues, which are received by the TRB trustee and used to meet pro-rata monthly debt service requirements before being released for operations.
The Stable Outlook reflects our expectation of continued strong debt service coverage from the Transportation Resolution gross revenue pledge. With the JFP’s projection of balanced operations throughout the Plan Period, MTA’s budgetary outlook is more stable than at any time in the last five years. Funding is available to address service and operational improvements that are important to further ridership recovery, while new revenue from the soon-to-be-implemented Central Business District Tolling Program (CBDTP), together with other dedicated tax revenues are expected to provide a more reliable capital funding source than farebox revenue to address MTA’s extensive capital needs.
Key Credit Considerations
The rating was affirmed because of the following key credit considerations:
Credit Positives
- The gross pledge of Transportation Resolution revenues supports robust debt service coverage. Sound liquidity and reserves provide adequate operating flexibility.
- New York State’s actions to de-risk MTA’s operating budget and eliminate projected Plan Period deficits are credit positive.
- MTA’s $1.5 trillion in transportation assets serve over 15 million people. They are essential to the future of the New York metropolitan area, a region critical to New York State and the nation.
Credit Challenges
- The MTA has identified aging infrastructure, climate change, and evolving ridership patterns as key long-term challenges that will require extensive capital investment. Existing leverage is high; however, dedicated taxes and CBDTP revenues are expected to support the MTA’s most critical long-term capital plan initiatives.
- MTA’s high fixed cost burden, including contractually required labor-related obligations, remains an impediment to ongoing, structurally balanced operations.
Rating Sensitivities
For upgrade:
- Delivery of critical Capital Plan elements, including state-of-good-repair projects, with maintenance of strong debt service coverage from pledged Transportation Revenues.
For downgrade:
- The reappearance of significant unfunded deficits during the Plan Period.
- Sustained ridership declines.
To access rating and relevant documents, click here.