OREANDA-NEWS. Fitch Ratings has assigned an 'A' rating to the Metropolitan Transportation Authority (MTA), New York's \$300 million transportation revenue bonds series 2015B. The Rating Outlook is Stable.

Additionally, Fitch has affirmed the 'A' rating on approximately \$20.4 billion (excluding bond anticipation notes [BANs] (refinanced by the 2015B bonds) and commercial paper [CP]) in outstanding MTA transportation revenue bonds.

The 'A' rating reflects the gross lien on a diverse stream of pledged revenues, the essentiality of the MTA's transit network to the economy of the New York region, and the demonstrated ability of the MTA to produce near-term solutions for its operating and capital needs. The rating also reflects the need to generate sufficient cash to adequately cover operations of the system despite high debt service coverage ratios (DSCRs).

KEY RATING DRIVERS

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 8.05 million daily subway and bus riders and Metro-North Railroad and Long Island Rail Road (LIRR) carrying another 576,000 daily commuter rail passengers. While an independent authority, the MTA has received significant support from the state of New York in the form of additional tax sources aimed at closing projected operating budget gaps and addressing capital needs.

Highly Constrained Financial Operations: Despite high DSCRs from gross pledged revenues, the MTA's financial position is constrained given its extremely large operating profile and high fixed costs, including significant retiree pension benefits. In addition, some of the MTA's operating subsidies are vulnerable to economic conditions. While the MTA is required to provide a balanced current year budget, some tools available to meet a balanced budget, such as service reductions and fare increases, are politically unpopular.

Solid Security Pledge: The bonds are secured by a gross lien on a diverse stream of pledged operating revenues consisting of transit and commuter fares and excess bridge tolls and non-operating revenues consisting of various regional taxes.

Extremely Large Capital Needs: While the MTA's 2015-19 Proposed \$29 billion Capital Program (Transit and Commuter Programs) was vetoed by the Capital Programs Review Board (CPRB), the proposed Transit and Commuter Capital Program assumes around \$3.9 billion in MTA related debt. The proposed plan has a roughly \$15.2 billion gap in funding which is expected to be funded through a combination of additional federal, state and/or local resources or potentially additional MTA debt. The proposed TBTA Capital Program (not subject to CPRB approval) is estimated to be \$3.1 billion with approximately \$2.3 billion funded from TBTA bonds. The MTA has historically faced the constant challenge of delicately balancing the large rehabilitation needs of the system and expansion projects while covering operating expenses and maintaining financial flexibility.

Growing Annual Debt Burden: The MTA's capacity to continue to leverage resources to fund expansion projects while meeting renewal and replacement needs may be limited in the future if projected financial performance or additional operating subsidies do not come to fruition.

Peer Comparison: Given the size and breadth of the MTA's network of transportation assets, there is no direct comparison for the entity.

RATING SENSITIVITIES

Negative:
--Inability to achieve future projected operating efficiencies and implement other key elements of the cost reduction initiatives and/or maintain an ongoing state of good repair and other elements of the capital program;
--Significant cost overruns or delays in the capital program's mega-projects that lead to additional borrowing or deferral of core capital projects;
--Receipts in dedicated tax subsidies that are measurably below forecast levels could pressure the MTA's financial flexibility.

Positive:
--Given small near-term operating surpluses but medium-term projected deficits positive rating movement is unlikely in the near term.

TRANSACTION SUMMARY
The 2015B bonds are being issued to retire the transportation revenue bond anticipation notes, series 2013A (ML Series) and transportation revenue bond anticipation notes, series 2013A (KeyBank Series).

The MTA's recently released February Financial Plan (2015 Adopted Budget 2015-2018) and incorporates policy actions previously described as 'below the line' in the November Plan and related technical adjustments. Technical adjustments are generally related to revenues associated with the implementation of fare and toll increases that will be effective on March 22, 2015 (delayed from the assumed March 1, 2015 implementation date), the release of the 2014 general reserve fund to reduce pension liabilities, reserving for retroactive wage payments, safety and service investments, future toll and fare increases and future MTA efficiencies. Overall, the effect of the technical adjustments from the November Plan slightly lowers the projected FY2015 cash balance (\$47 million from \$64 million), FY2016 is generally unchanged at \$102 million positive cash balance, and FY2017 projects a slightly higher cash position (\$10 million vs. \$1 million). The FY2018 deficit is slightly lower at \$305 million as compared to \$322 million in November.

Risks to the February Plan/Adopted Budget are similar to the November Plan and include the ability to achieve savings from identified operating efficiencies, potential volatility in some operating subsidies (real estate related dedicated tax sources), greater than expected elasticity from future proposed fare and toll increases, and uncertainties associated with the final completion and operating costs of the East Side Access and 2nd Ave Subway projects. To the extent that any of these elements fail to reach current expectations, projected year-end cash balances may be materially different than currently estimated. While the MTA has a demonstrated history of closing outer-year deficits, it is Fitch's opinion that the options available for new revenue generation are fewer in the current environment; however, the MTA continues to explore and implement new operating efficiencies and cost reduction measures to these gaps.

Fitch continues to monitor the MTA's 2015 - 2019 Capital Program approval process. At its Sept. 24, 2014 meeting, the MTA Board reviewed and authorized submission for the \$29 billion proposed 2015 - 2019 Transit and Commuter Capital Program to the CPRB. In addition, the \$3.1 billion Bridges and Tunnels Capital Program (not subject to CPRB approval) was submitted. On Oct. 2, 2014, the Review Board vetoed the Proposed 2015 - 2019 Transit and Commuter Capital Program without prejudice. The Proposed 2015 -2019 Bridges and Tunnels Capital Program may also be modified prior to final adoption.

The Proposed 2015 - 2019 Transit and Commuter Capital Programs are expected to be funded from a variety of sources, including bonds, state, city and federal funds, and currently projects a \$15.2 billion funding gap. The projects identified in the approved 2015 - 2019 Bridges and Tunnels Capital Program will be funded with a combination of MTA Bridges and Tunnels bonds and pay-go. Fitch notes that prior MTA Capital Programs have had significant funding gaps similar to this size ahead of CPRB approval.

The essentiality of the system to the greater NYC area and surrounding counties is demonstrated by the more than eight million daily riders. As previously demonstrated, Fitch expects the MTA will successfully implement its Capital Program with funding from MTA bonds and its city, state and federal partners. MTA bonds across all liens are possible, including transportation revenue bonds, dedicated tax fund bonds, and potentially leveraging the payroll mobility tax for a new credit. To the extent funding is not provided by city, state and federal partners to fill the approximately \$15.2 billion funding gap, additional leveraging of the MTA's credits cannot be ruled out in the event that the MTA does not scale back certain non-core elements of the transit and commuter system. Fitch will monitor the carefully arranged efforts and negotiations between partners to meet the ultimate funding needs.

The transportation revenue bonds are secured by a gross lien on the MTA's operating receipts and subsidies, including transit and commuter rail fares and other operating revenues, surplus toll revenues, and certain dedicated tax sources, state and local operating subsidies, and reimbursements.