OREANDA-NEWS. Fitch Ratings has assigned an 'F1+' rating to the Metropolitan Transportation Authority, NY's (MTA) $700,000,000 dedicated tax fund (DTF) bond anticipation notes (BANs), consisting of:

--$350,000,000 subseries 2016A-1;

--$350,000,000 subseries 2016A-2.

The BANs are expected to be sold via competitive bid on or about June 16, 2016. Subseries 2016A-1 matures on March 1, 2017 and subseries 2016A-2 matures on June 1, 2017.

SECURITY

The DTF BANs are payable solely from the proceeds of other DTF notes or bonds and with respect to interest, amounts available for payment of subordinated indebtedness. The notes are not secured by any other funds, accounts or amounts that are pledged to the payment of DTF bonds or parity obligations.

KEY RATING DRIVERS

LONG-TERM DTF RATING: The 'F1+' rating on the MTA's DTF BANs is based on the long-term credit quality of the MTA's DTF bonds, which are rated 'AA'/Outlook Stable. The BANs are intended to be taken out by proceeds of future DTF borrowing with interest on the BANs also payable from pledged DTF revenues on a subordinate basis to DTF bond principal and interest.

APPROPRIATION OF STATE: Tax revenues allocated to the DTF are provided by annual appropriations of the state legislature, and the state has discretion regarding revenues flowing to the fund. The state has a track record of providing a reliable revenue stream to the DTF.

STRATEGIC IMPORTANCE: The MTA transportation network is essential to the economy of New York State. New York City Transit (NYCT) carries an average of 8.1 million daily subway and bus riders and Metro-North Railroad (MNR) and Long Island Rail Road (LIRR) carry another 587,000 daily commuter rail passengers.

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

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

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.

RATING SENSITIVITIES

STATE CREDIT QUALITY: The short-term rating is sensitive to the long-term credit quality of the DTF bonds, which itself is linked to the credit quality of New York State, which currently has a 'AA+' Issuer Default Rating.

CONTINUATION OF STATE COMMITMENT: Evidence that New York State's historical commitment to providing a generally reliable revenue stream to the dedicated tax fund is materially reduced could result in a downgrade.

CREDIT PROFILE

The 'F1+' rating on MTA's DTF BANs is tied to their intended source of repayment, proceeds from issuance of long-term DTF bonds. Interest on the BANs is also payable from pledged revenues, subordinate to payment of debt service on outstanding DTF bonds. Fitch rates DTF bonds 'AA'/Outlook Stable.

DTF bonds are a long-established bond program of the MTA for the support of its capital needs. Under resolutions authorizing the BANs, the MTA may issue up to $2.7 billion in BANs through either its DTF or its transportation revenue bond (TRB) programs. (Fitch rates the TRBs 'A'/Outlook Stable.) The MTA also covenants in the bond documents to maintain bond issuance capacity in an amount sufficient to pay principal and interest on the BANs when due.

Underlying the 'AA' rating is Fitch's expectation that the state's record of support of the fund will continue going forward and that DTF borrowing will remain at a level that allows for substantial excess resources to flow to the MTA to support transit and commuter rail operations.

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 credit quality on the bonds reflects expectations of the state's ongoing commitment to the program.

DTF bonds are special obligations payable by state taxes deposited in the pledged amounts account from MTTF and MMTOA receipts, subject to annual legislative appropriation. 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 a portion of 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 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.

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. Periodic adjustments since then to dedicated resources of the MMTOA have been small relative to overall MMTOA resources and otherwise have been used to support MTA needs.

Fitch calculates that total MTTF and MMTOA pledged receipts of approximately $2.3 billion in state fiscal year 2017 will provide 5.5 times (x) coverage of fiscal 2017 debt service and 5.4x coverage of MADS (in fiscal 2024). Fitch's coverage calculations exclude the offset provided by federal Build America Bond subsidies, at about $26 million annually. Fiscal year 2017 MTTF estimated 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 the 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'/Outlook Stable). The transportation revenue bonds are also secured by the MTA's operating receipts and other sources.

State statute prohibits the MTA from filing a bankruptcy petition. The same statute includes the state's pledges to maintain this prohibition in place as long as bonds are outstanding and to leave bondholders' rights unimpaired.