Chicago Transit Authority objects to Moody's credit downgrade

Reuters

CHICAGO, Oct 28 (Reuters) - The Chicago Transit Authority onMonday blasted Moody's Investors Service for downgrading theagency's credit rating, saying the move was not justifiedbecause revenue is growing.

The agency responsible for mass transit in Chicago alsostruck back at a plan, floated Monday by the head of theRegional Transportation Authority of northeastern Illinois, totake away the CTA's authority to issue bonds.

Moody's late on Friday cut the Aa3 rating on $2.9 billion ofthe CTA's sales tax revenue bonds one notch to A1 with anegative outlook. The ratings agency cited diminished politicalwill to raise revenue amid growing capital needs and dwindlingstate and federal support.

Illinois' fiscal issues are directly affecting the CTA,delaying payment of bills to the transit agency, Moody's noted."A backlog of pledged state matching payments, though recentlyreduced, will remain a long-term challenge and may beexacerbated by impending state income tax cuts and the state'smassive pension deficits," Moody's said in a statement.

The CTA, which operates subway and bus service in Chicago,is the latest major debt issuer in Illinois hit with downgradeand negative outlook by Moody's. Pension and budget woes led toa cut in Illinois' rating to A3 in June, Chicago fell threenotches to A3 in July, and Cook County, which includes the cityof Chicago, was cut one notch to A1 in August.

The rating agency said the CTA's increasing pensionchallenges could strain its operating budget.

The CTA in its statement Monday sought to counter Moody'sgrim assessment. The CTA said it was determined to operatewithin its means and has no plans to seek additional funding. Italso noted sales tax, fare and other revenue is growing.

"There is no justification for downgrading an entity withincreasing revenues, stable operations, and manageable pensionobligations," the agency said in a statement. "There has been nonew fiscal change to CTA's position over the last year, and CTAstrongly objects to this downgrade based on the facts."

Adding to the CTA's credit woes, the regional transit agencythat over sees the CTA on Monday said it may try to take awaythe CTA's ability to issue bonds.

A memo on Monday from Chairman John Gates, chairman of theRegional Transportation Authority board, said the regional groupis considering a move to serve as the central bonding agency forthe region's transit. Gates in his memo said the plan is backedby Chicago Mayor Rahm Emanuel and the heads of suburban Chicagocounties, and would seek to take advantage of RTA's higher, Aa3credit rating.

Gates also said the RTA's borrowing capacity should beincreased from $800 million to $5 billion to meet capital needs.

Gates' memo criticized the CTA for back-loading theprincipal payments on its $6 billion of outstanding debt, apractice that raises interest costs. He also said the CTA lacksbondholder security measures, such as a reserve fundrequirement. Gates also noted the CTA was incurring more coststo sell its debt.

"In fact, for every billion dollars of bonds issued in thepast 10 years, the CTA has spent nearly $2 million more onprofessional services than has the RTA," the memo said.

The CTA said the idea of consolidating bond issuanceconstituted a power grab by the RTA "that would hurt service,make it harder to reinvest in the system, and make the RTAanswerable to no one."

Illinois lawmakers have been struggling to come up with afix for the state's $100 billion unfunded pension liability,which is squeezing out funding for core state services such aseducation. The legislature is also facing a partial phase out,starting in 2015, of big income tax increases enacted in 2011.

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