KBRA Revises Outlook to Negative for Peninsula Corridor Joint Powers Board Farebox Revenue Bonds; Affirms AA- Rating
25 Jan 2024 | New York
KBRA revises the Outlook to Negative from Stable for the Peninsula Corridor Joint Powers Board Farebox Revenue Bonds and affirms the long-term rating of AA-.
The revised outlook reflects Caltrain's anemic, post-pandemic ridership recovery coupled with substantial, projected operating cost escalations beginning in FY 2025 following the completion of the Peninsula Corridor Electrification Project (PCEP). The confluence of both circumstances has exacerbated what were already significant, projected out year budget gaps, making it more difficult for the Peninsula Corridor Joint Powers Board (JPB), which operates Caltrain, a single-asset commuter rail system, to craft a financially viable path forward.
Key Credit Considerations
The rating was affirmed because of the following key credit considerations:
- Gross lien pledge of farebox revenues provides strong coverage of farebox revenue bonds despite pandemic induced ridership declines.
- Although not pledged to farebox revenue bond repayment, Measure RR sales tax revenues provide a significant source of revenues to support operations and capital through a slow post-pandemic recovery in ridership.
- Favorable long-term demographic trends and high income level of population base served are supportive of long-term ridership growth.
- Outyear budget gaps are large reflecting a very weak ridership recovery and large anticipated operating cost escalations following the completion of PCEP later this year.
- Pandemic-induced ridership declines have been sharp and recovery remains slow, weighing negatively on JPB operations and farebox revenue bond coverage.
- Potential for further delays and cost overruns in the $2.44 billion electrification project may necessitate additional funding sources.
- Delays in PCEP reimbursements have pressured liquidity.
- Restoration of ridership to pre-pandemic levels and restoration of trend of long-term ridership growth.
- Inability to address outyear budget gaps.
- Unfavorable developments in ability to manage near-term liquidity or significant further delays and cost overruns in completion of PCEP.
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