Fitch: Five Transit Agencies on “Rating Watch Negative”

Written by William C. Vantuono, Editor-in-Chief
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Photo courtesy the New York Post.

Fitch Ratings has placed the ratings of five large U.S. public transit agencies on “Rating Watch Negative.” Fitch said it “expects widespread and sharp declines in transit ridership and fare revenues to create significant near-term stress in the U.S. public transit sector with the [agencies] identified here at the greatest risk. Some transit agencies in major urban areas that have already been impacted by the pandemic are reporting ridership declines of as much as 70% to 90% amid efforts at social distancing, a widespread shift to telecommuting and shelter-in-place orders.”

Fitch said it “does not believe that the traditional tools available to balance transit agency budgets will be sufficient to offset a meaningful proportion of revenue losses. While some capital spending may be delayed, service is unlikely to be curtailed enough to offset revenue losses due to the essentiality of the public service provided and need to continue providing transportation to health care workers and other essential workers. Fare increases are unlikely to be a meaningful budget balancing tool in the current environment and would be insufficient to offset the magnitude of revenue losses expected if attempted.

“These fare-dependent transit agencies entered the current period with solid to strong liquidity and operating reserves to offset typical ridership and economic volatility. However, the current period of stress is significantly greater than the rating case stresses factored into Fitch’s transit ratings and a more extreme stress than transit agencies routinely plan for. Fitch believes transit agency liquidity positions are likely to erode rapidly given the current the scope of revenue losses and the need to continue essential public services.

“Major transit agencies have requested emergency federal assistance to support continued provision of transit services in U.S. urban areas. Fitch expects some degree of state and federal support to be forthcoming due to the essentiality of transit services to public health and safety. The degree of support and the speed with which it is provided will largely determine the near-term ratings impacts of the current ridership losses on these credits.

“The move to Rating Watch Negative reflects actual and expected severe declines in transit ridership and revenues due to coronavirus pandemic. The rating action applies to the transit agencies that have the highest dependence on fares to fund operations, though further rating action may be necessary in the sector as the degree of second order impacts (declines in economically sensitive tax revenues) becomes clear.”

The following ratings are affected:

  • New York Metropolitan Transportation Authority AA– transportation revenue bond and F1+ transportation revenue bond anticipation note ratings. The MTA’s transportation revenue bonds are backed by a gross lien on the MTA’s operating revenues, which include, among other sources, fares received from the subway and bus systems operated by the MTA New York City Transit and its subsidiary, the Manhattan and Bronx Surface Transit Operating Authority, the commuter railroads operated by MTA Long Island Rail Road and MTA Metro-North Railroad, and buses operated by MTA Bus. TRBs are also backed by a gross lien on operating subsidies from the state of New York, New York City and MTA Bridges and Tunnels surplus.
  • San Francisco Bay Area Rapid Transit District (BART) AA+’Issuer Default Rating (IDR) and sales tax revenue bond ratings. BART’s sales tax revenue bonds are payable from a first lien on 75% of the half-cent BART sales and use tax (sales tax) levied in Alameda and Contra Costa counties, and the City and County of San Francisco (collectively, the BART counties).
  • Washington Metropolitan Area Transit Authority (WMATA) AA– gross revenue transit bond ratings. WMATA’s gross revenue transit bonds are backed by a pledge of the trust estate established pursuant to the 2003 gross revenue bond resolution on parity with the Authority’s outstanding gross revenue transit bonds, except that the series 2018 bonds and all other bonds issued under the resolution on or after Nov. 15, 2018, will not have a lien on future dedicated revenues provided by certain supporting overlapping entities.
  • Metropolitan Atlanta Rapid Transit Authority (MARTA) AA– IDR and third indenture sales tax revenue bond ratings. MARTA’s sales tax revenue bonds are payable from a first lien on sales tax receipts from the levy of a 1% sales tax within Fulton and DeKalb counties and the city of Atlanta (the authority’s original sales tax) and a first priority lien on receipts of a 1% sales tax levied in Clayton County. The bonds were sold with a third lien on pledged revenues, but bonds issued under the prior liens have been repaid. Title ad valorem taxes on motor vehicles are also pledged.
  • Regional Transportation District (RTD, Denver, Colo.) AA IDR and sales tax revenue bonds, AA– certificate of participation (COP) and A+ Eagle Project Counterparty ratings. RTD’s sales tax revenue bonds are secured by a first lien on the district’s 0.4% FasTracks sales tax and a subordinate lien on the 0.6% base system sales tax. The COPs are subordinate to the senior sales tax bonds, FasTracks bonds, Transportation Infrastructure Innovation Act (TIFIA) loan, and the capital portion of the Eagle Project payment, and are repaid out of all available revenues of the district, subject to annual appropriation. Base rental payments for the COPs are on parity with operating expenses of the base system and the non-capital portion of the Eagle project payment.

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