Rating Action: Moody's assigns Aa3 to Triborough Bridge & Tunnel Authority, NY's Remarketing of General Revenue Variable Rate Refunding Bonds, Subseries 2005B-4a
Global Credit Research - 14 Jan 2021
New York, January 14, 2021 -- Moody's Investors Service has assigned Aa3 to the Triborough Bridge & Tunnel Authority, NY's (TBTA or MTA Bridges and Tunnels) remarketing of approximately $105 million General Revenue Variable Rate Refunding Bonds, Subseries 2005B-4a (Secured Overnight Financing Rate Tender Notes). The outlook on the long-term ratings is negative.
On February 1, 2021, the TBTA plans to execute a mandatory tender for purchase and remarketing of the currently outstanding Subseries 2005B-4a Bonds on its mandatory tender date. The Subseries 2005B-4a Bonds will be converted from an adjusted LIBOR variable rate to an adjusted SOFR variable rate.
The Triborough Bridge & Tunnel Authority senior and subordinate lien ratings (Aa3/A1) reflect the essentially of its facilities to the New York City metropolitan region, and its historically solid financial metrics are among the strongest of all toll road facilities. TBTA tolls are set at a level to generate a surplus for transit operations, which normally provides a substantial pledged cushion to bondholders before the transfer to its parent, the Metropolitan Transportation Authority (MTA). Despite the stress related to the outbreak of coronavirus in the United States, TBTA's credit profile remains strong with FY 2019 senior lien and all-in coverage of 2.64x and 2.26x respectively on a Moody's net revenue basis; adjusted debt to operating revenue was low at 4.48x. The TBTA could withstand approximately a 44% reduction in operating revenues in FY 2020 while maintaining its ability to pay debt service without liquidity support. This cushion rises to more than 50% if the taxes collected by the TBTA as part of the Central Business District Tolling Lockbox funds are included; though these monies were originally restricted to capital spend, the state authorized their use for operations as part of the April 2020 budget announcement.
The TBTA revenues saw sharp declines starting in early March related to coronavirus. March paid traffic was down to 18.9 million crossing or 31% from the prior year, while toll revenues were down 21% or $126.1 million. The declines bottomed out in April, with monthly traffic 65% down and monthly toll revenues 60% down. The recovery began in May, and as of October 31st, monthly traffic totaled 24.4 million crossing and was only down 13.1% from the prior year and at $158.2 million, monthly toll revenues were down 13.7%. This recovery for MTA Bridges and Tunnels is faster than both the moderate and fast scenarios contemplated within the McKinsey analysis released by the MTA in May and more than 70% better than the TBTA's mid-year forecasts.
Under the MTA's organization structure, TBTA has an open flow of funds after the pledge of net revenues to its bondholders, whereby after the payment of O&M, debt service and deposits to the Necessary Reconstruction Fund, annual surpluses are transferred to the MTA under statutory requirement to support transit and commuter operations. Additionally, the MTA has the ability to manage cash across all its component units; therefore, TBTA's liquidity is available for use by its parent and vice versa. Under the current severe revenue stress at the MTA, this relationship becomes a vulnerability. The risks around TBTA's liquidity are exacerbated by the lack of a trustee-controlled debt service reserve fund. The possibility also exists that the MTA will use the TBTA credit to finance mass transit as it is empowered to issue toll revenue-backed debt for transit/commuter capital projects, which occurred during the last economic downturn.
The rapid and widening spread of the coronavirus outbreak and deteriorating global economic outlook are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
The negative outlook reflects the assumption of materially lower TBTA revenues due to the coronavirus combined with ongoing credit pressure on the MTA which may materially reduce the organization's combined liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATING
-TBTA traffic and revenues return to pre-coronavirus levels, in concert with stabilization of the credit profile of the MTA
-Dedication of additional financial liquidity to support TBTA bondholders
-Clarity on future long-term capital requirements for both the TBTA and MTA that allows overall debt metrics and DSCRs to improve over the long-term
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATING
-A material decline in the MTA's liquidity position and overall credit quality, increasing the potential that the TBTA revenues are tapped to support the broader organization
-Declines in TBTA traffic and revenues with no sign of rebounding, leading to forecast financial metrics remaining weak for a sustained period
Senior lien general revenue bonds are secured by a first lien on net revenues of bridges and tunnels; subordinate lien bonds are secured by a second lien on net revenues. The bonds do not benefit from a debt service reserve fund. There is a rate covenant that requires net revenues to be maintained at 1.25x annual debt service for senior lien debt and a strong additional bonds test that requires net revenues to be 1.40x the maximum annual debt service on outstanding and planned bonds if the bonds are issued for something other than to keep the facilities in good operating condition.
USE OF PROCEEDS
MTA Bridges and Tunnels anticipates that the proceeds of the remarketing of the Subseries 2005B-4a Bonds will be used to pay the purchase of the currently outstanding Subseries 2005B-4a Bonds.
The Triborough Bridge & Tunnel Authority, or MTA Bridges and Tunnels, is a public benefit corporation (a corporate entity separate and apart from the state) without any power of taxation. The TBTA is empowered to construct and operate toll bridges and tunnels and other public facilities in New York City. The TBTA's facilities include the Robert F. Kennedy Bridge (formerly the Triborough Bridge), the Verrazzano-Narrows Bridge, the Bronx-Whitestone Bridge, the Throgs Neck Bridge, the Henry Hudson Bridge, the Marine Parkway-Gil Hodges Memorial Bridge, the Cross Bay Veterans Memorial Bridge, the Hugh L. Carey Tunnel (formerly the Brooklyn-Battery Tunnel), and the Queens Midtown Tunnel. The TBTA receives its revenues from all tolls, rates, fees, charges, rents, proceeds of use and occupancy insurance on any portion of its tunnels, bridges and other facilities, including the net revenues of the Battery Parking Garage, and bridges and tunnels' receipts from those sources. The TBTA issues debt obligations to finance the capital costs of its facilities; it is also authorized to issue debt to support transit and commuter systems operated by other affiliates and subsidiaries of the Metropolitan Transportation Authority or MTA, though that has not been done since 2008. The TBTA's surplus amounts are used to fund transit and commuter operations and finance capital projects.
The principal methodology used in this rating was Publicly Managed Toll Roads and Parking Facilities published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091602. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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