News Column

Fitch Rates MTA (NY) Dedicated Tax Fund Bonds 'AA-'; Outlook Stable

June 11, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned an 'AA-' rating to the following Metropolitan Transportation Authority, NY (MTA) dedicated tax fund (DTF) variable-rate refunding bonds:

--$85 million subseries 2008A-2a bonds (floating-rate tender notes);

--$85 million subseries 2008A-2b bonds (floating-rate tender notes).

The MTA intends to split the current subseries 2008A-2 variable-rate bonds, which have been supported by a direct pay letter of credit that is expiring, into the two new subseries of floating-rate tender notes. The MTA is effecting a mandatory tender of the outstanding 2008A-2 bonds on June 18, 2014.

Fitch has also affirmed the 'AA-' underlying, long-term rating on $5.1 billion outstanding MTA DTF bonds.

The Rating Outlook is Stable.

SECURITY

The DTF bonds are secured by a gross lien on the Mass Transportation Trust Fund (MTTF), which is funded from an allocation of the state's petroleum business tax, motor fuel tax and motor vehicle fees, subject to annual appropriation by the state legislature. Providing further security is a standby gross pledge of the Metropolitan Mass Transportation Operating Assistance Account (MMTOA), which is funded from a regional sales tax, the state petroleum business tax, a state franchise tax and a regional franchise tax surcharge, also subject to annual state appropriation.

KEY RATING DRIVERS

SOLID DEDICATED TAX STREAM: The dedicated taxes are diverse and derived from a broad, wealthy state and regional economy, although revenues are sensitive to economic cycles.

RECORD OF STATE SUPPORT: Tax revenues allocated to the DTF are subject to annual appropriation by the state legislature, and the state has discretion regarding revenues flowing to the fund. The state has a track record of providing a generally reliable revenue stream to the DTF.

AMPLE COVERAGE: Dedicated revenues provide ample coverage of maximum annual debt service (MADS), and there is a strong incentive to limit leveraging of the DTF given the demands on surplus revenues for operating support of transit and commuter rail.

STRATEGIC IMPORTANCE: The MTA transportation network is essential to the economy of the New York region, with New York City Transit carrying an average of 8 million daily subway and bus riders and Metro-North Railroad (MNR) and Long Island Rail Road (LIRR) carrying another 566,000 daily commuter rail passengers.

INSULATION FROM MTA OPERATIONS: The security for the dedicated tax bonds is largely insulated from the highly constrained financial operations of the MTA, although excess DTF revenues after debt service obligations are met are needed to support transit and commuter operations.

RATING SENSITIVITIES

The rating is sensitive to the credit quality of both New York State and the MTA. In addition, evidence of a change in New York State's historical commitment to providing a generally reliable revenue stream to the dedicated tax fund would result in greater separation from the state general obligation (GO) rating.

CREDIT PROFILE

Underlying the 'AA-' rating on the DTF bonds is the amount and diversity of revenues that are pledged to the DTF for debt service on its bonds, subject to state legislative appropriation; the record of state support of the fund; and the expectation that the MTA will continue to maintain sufficient financial flexibility within the DTF to not only cover DTF bond debt service adequately but also provide sizable transfers to the MTA to support transit and commuter rail operating needs.

The bonds are special obligations secured by state taxes deposited in the pledged amounts account from MTTF and MMTOA receipts. The state legislature established the MTTF in 1991 to address the need for continued capital investment in the state's transportation infrastructure. MTTF revenue is derived from statewide petroleum business taxes, motor fuel taxes, and motor vehicle fees. The MMTOA was created in 1980 in anticipation of continuing ongoing operating deficits of state mass transportation systems. Four categories of special taxes are deposited into the MMTOA: a regional franchise tax surcharge on business activity carried out within the transportation district; a regional sales tax imposed on sales and uses of certain tangible property and services within the MTA transportation district; a portion of franchise taxes on certain transportation and transmission companies statewide; and an additional portion of statewide petroleum business taxes.

Tax revenues allocated to the DTF are subject to annual appropriation by the state legislature. The state is not bound or obligated to continue imposition of taxes and fees from which trust fund revenues are currently derived and can amend, modify, repeal, or otherwise alter statutes imposing or relating to the fund or the taxes or appropriations. As a result, the rating on the DTF bonds could not be higher than the appropriation debt rating of New York State (currently rated 'AA-' with a Positive Outlook by Fitch, one notch below the state's GO rating).

The state has a track record of providing a generally reliable revenue stream to the DTF, although as part of a gap-closing plan in late 2009 the state legislature reduced the MMTOA appropriation. This was the first time an existing appropriation to the MTA from a dedicated tax that had already been collected by the state had been reduced, and there has been no further such action since that time. The state reports that its enacted budget for fiscal 2015, which began on April 1, includes legislative authorization to transfer $30 million in dedicated resources from the MMTOA to the general debt service fund to offset state general fund support for MTA-related debt service costs; the financial plan assumes an annual $20 million transfer for this purpose thereafter. Transfers are expected to be from reserve fund balances in the MMTOA account.

Total MTTF and MMTOA receipts of $2.1 billion in state fiscal year 2014 (which ended on March 31, 2014) provided more than 5x coverage of MADS. MTTF receipts alone provided coverage of about 1.5x MADS. An additional bonds test requires not less than 1.35x historical coverage of MADS by MTTF receipts and investment income, and not less than 2.5x coverage of MADS by combined MTTF and MMTOA receipts and investment income. As the MTA issues additional bonds to finance its large transit and commuter rail capital needs, debt service coverage is expected to fall but still be strong based on MTA's operating demands, which provide practical limits on the amount of debt issued in the future.

MTTF receipts are transferred to the debt service account monthly in the amount of 1/5 of the next interest payment and 1/10 of the next principal payment. MMTOA receipts are applied to the debt service account to the extent MTTF receipts are not sufficient to meet the debt service requirement but have never been needed for this purpose.

Excess MTTF and MMTOA receipts are used by the MTA for capital and operating needs of the transit and commuter rail systems, including debt service on the MTA's transportation revenue bonds (rated 'A' with a Stable Outlook). The transportation revenue bonds are also secured by the MTA's operating receipts and other sources.

For more information on the MTA, see Fitch's press release 'Fitch Rates Metropolitan Transportation Authority (NY) Revs 'A'; Outlook Stable' dated June 6, 2014, available on Fitch's web site at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. State Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834160

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Laura Porter

Managing Director

+1-212-908-0575

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Secondary Analyst

Douglas Offerman

Senior Director

+1-212-908-0889

or

Tertiary Analyst (MTA transportation revenue credit)

Chad Lewis

Senior Director

+1-212-908-0886

or

Committee Chairperson

Marcy Block

Senior Director

+1-212-908-0239

or

Media Relations:

Elizabeth Fogerty, +1-212-908-0526

elizabeth.fogerty@fitchratings.com


Source: Fitch Ratings


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