MARTA to offer up to $212 million of triple-A green bonds

Strong sales tax performance means the Metropolitan Atlanta Rapid Transit Authority retains its triple-A ratings ahead of a green bond sale next week despite long-term problems with ridership.

Ridership is down about 50% from late 2019 pre-COVID figures and 60% from its peak in 2008. Yet the bonds are backed by local sales taxes with growing revenues and both S&P Global Ratings and Kroll Bond Rating Agency rates the upcoming bonds AAA with a stable outlook.

Monthly ridership in total unlinked trips slowly declined from about 14 million in mid-2008 to about 11.4 million in late 2019. Ridership plunged in the first few months of 2020 at the start of the COVID period to about 3 million. Since then, it has gradually recovered and in January it was around 5.3 million.

Ridership of 32.9 million unlinked trips from July through December was 1.5% below MARTA’s forecast for the period. An unlinked trip occurs every time a passenger boards a MARTA vehicle – a journey may require two or more unlinked trips if the rider needs to connect.  

On a more positive note, the Atlanta area last year was the third fastest growing area in terms of numbers of additional residents in the United States, according to the U.S. Census. From 2010 to 2023 the population grew 17.3% as compared to a growth of 7.7% nation-wide.

“Generally, MARTA’s lower ridership means that they will pay a higher rate for the bonds,” said Baruch Feigenbaum, senior managing director of transportation policy at Reason Foundation. “Bus ridership has almost fully recovered [since COVID] but rail ridership is lagging badly.

“In the short-term MARTA is okay because of the short-term infusion of federal funding but that runs out over the next fiscal years and agencies will face a fiscal cliff,” Feigenbaum continued. “Bond agencies know this. MARTA is in a better financial condition than some other large transit agencies. However, there is less political consensus in Atlanta to increase public subsidies through taxes or general fund.”

The bonds are slated to price May 8. The deal comes in two series: the $112 million new money Series 2024A sales tax revenue bonds; and up to $110 million of Series 2024B sales tax refunding revenue bonds.

The Series 2024B bonds will refinance a portion of the Series 2015B, 2015C, 2016B, 2017D, 2020B, and 2021D sales tax revenue bonds. In late April MARTA posted an invitation to tender the to-be-refunded series. The invitation is open until Monday.

The 2020B and 2021D bonds are taxable.

Jefferies will be the lead underwriter and Wells Fargo will be the co-senior underwriter. Loop Capital Markets and Siebert Williams Shank will also participate.

PFM Financial Advisor is MARTA’s muncipal advisor.

Holland & Knight LLP is the bond counsel, Kutak Rock is the Authority’s Counsel and Disclosure Counsel, and Townsend & Lockett is the Special Counsel.

The 2024A bonds will mature in 2032, 2034, 2035, and 2037. There will be a call option at par in 2034. As of Wednesday MARTA hadn’t yet announced the maturities of the 2024B bonds.

Kestrel Verifiers, a Climate Bonds Initiative approved verifier, has determined the Series 2024 bonds are in conformance with the four core components of the ICMA Green Bond Principles and has certified the Series 2024 bonds as green bonds.

MARTA serves Fulton, Dekalb, and Clayton counties, centered on Atlanta, the Fulton County seat.

It provides public transit in four forms. It is a heavy rail system with 38 rail stations and 48 miles of track. It is a bus system with 514 buses serving 113 fixed bus routes. It is a paratransit with 239 mobility vans. Finally, it is a streetcar in Atlanta with a 2.7 mile downtown loop with 12 stops.

MARTA’s bonds are backed by a pledge of sales and use taxes and ad valorem taxes on motor vehicles, with the former providing 95% of the revenue. The sales and use taxes consist of a 1% sales and use tax levied in the counties plus a 0.5% tax levied in Atlanta. Since Atlanta is in Fulton and DeKalb counties, residents pay a total of 1.5% on sales that support the bonds.

The sales tax receipts are tranferred monthly to the bond trustee before distribution to MARTA for operations.

In explaining S&P’s AAA rating of the bonds, Senior Analyst Kayla Smith said MARTA’s pledged revenue grew 5.9% in fiscal 2023 from the previous fiscal year. In the fiscal year through March it is 1.7% above the prior-year period.

The pledged revenue continues to “produce very strong maximum annual debt service coverage,” she said, noting a 5.19 times level in fiscal 2023. MADS coverage has improved over the last several fiscal years.

MARTA plans to issue up to $3.3 billion in additional debt in fiscal 2025 through 2033 but Smith said the “cushion” that the coverage metrics provides and other factors make this not a significant credit concern. Even while it has included this level of debt in its plans, the authority does not expect to issue it. Rather, it hopes to use cash to cover some of its capital needs.

Feigenbaum said MARTA “has plans for new bus rapid transit lines, which are typically 1/3 to 1/9 the cost of rail, so that would be a [financial] factor, but not as much as heavy rail extensions.” It also plans to add four new stations on existing train lines.

“It is partnering with the city of Atlanta to add transit to the Beltline,” Feigenbaum said. “However, it is unclear if that will be rail or bus. MARTA and the Atlanta mayor appear to support bus rapid transit, but some on the city council and environmental community want rail. Given the modal uncertainty, factoring in the costs for MARTA is challenging.”

As credit positives, S&P’s Smith cited the “broad and diverse local economy, supported by the healthy and expanding large Atlanta metropolitan statistical area.” Taken together, Atlanta and its suburbs is one of the fastest growing U.S. Census designated metropolitan areas in the country.

She also noted a pledged revenue sources “with relatively low volatility that has exhibited robust growth trends and resilience through weaker economic cycles.”

MARTA “benefits from tax revenue funding the majority of operations,” with an average of 81.4% of total revenue in fiscal years 2020 to 2023 from this source. “This lowers reliance on fares and thus mitigates operating risk stemming from the effects of ridership declines,” Smith said.

To explain the ridership declines from 2008 to 2019, Feigenbaum said, “For transit choice riders, some started working from home, which was trending up as early as 2010. Also, most new job growth in Atlanta has been in suburban locations away from transit. There are a small number of folks who wanted to take transit but did not have the option.”

KBRA analysts cited for its AAA rating the priority of the payment of the bonds from sales tax revenue receipts, the historic strength and resilience of the revenue base, the strong 5.2 times maximum annual debt service coverage, and a “conservative additional bonds test requiring prior year receipts equivalent to at least two times maximum annual debt service coverage.”

“MARTA’s relatively low reliance on farebox revenues (farebox recovery ratio of 26% in FY2019) has translated into a manageable financial impact from reduced ridership since the pandemic,” KBRA analysts wrote in mid-April. As of February 2024 ridership was 46% below the February 2019 level.