BART hits the market after three-year hiatus

San Francisco Bay Area Rapid Transit, which has struggled to regain ridership post-pandemic, had its ratings affirmed ahead of plans to issue more than $1 billion in debt.

BART operates a 131-mile heavy-rail transit system connecting San Francisco to east and south bay cities, an area with 3.6 million residents.

The commuter rail system hasn’t sold debt since 2022 when it priced $700 million in general obligation green bonds.

“We are hearing (from the underwriters) there is considerable appetite for both the general obligation bonds and the sales tax bonds,” said Priya Mathur, BART’s director of funding strategy.

Lead managers Barclays and Siebert Williams Shank will price $929.8 million in green general obligation bonds split in three tranches: $651.8 million in Series E-1 tax exempt, $229.8 million Series H refunding and a $48.2 million taxable. A retail order period is planned Monday with institutional pricing to follow Tuesday.

Moody’s Ratings affirmed its Aa1 rating and Fitch Ratings its AAA rating. Both assigned a stable outlook.

Moody’s had downgraded the ratings to Aa1 from AAA in June, citing lagging ridership recovery, but revised the outlook to stable from negative.

On Wednesday, JP Morgan and Wells Fargo Securities will price $75.5 million in sales tax revenue refunding green bonds in a separate deal.

S&P and Kroll Bond Rating Agency assigned AA-plus ratings and Fitch an AA rating to the sales tax bonds. Both affirmed a stable outlook.

Orrick, Herrington & Sutcliffe is bond counsel on both deals.

On the GO refunding, BART expects to issue up to $275 million for $13 million in savings and up to $85 million in sales tax revenue bonds for up to $6 million in savings, Mathur said.

BART closed a $35 million shortfall it faced when it began the budget process for fiscal 2026 nine months ago through cost controls including freezing or eliminating 45 open positions, by shortening trains, and with plans for a 6.2% fare increase set for January and installation of gates to prevent fare theft, said Pam Herhold, BART’s assistant general manager of performance and budget.

BART is running about 200,000 trips a day, which is about 50% below pre-pandemic levels, Herhold said.

The transit system had been exceptional historically for farebox recovery, paying two-thirds of operation costs, compared to 30% for other systems, Herhold said, which meant it was able to be less dependent on other revenue sources like sales tax. But the ridership post-pandemic has reduced BART’s farebox recovery more in-line with other transit operators, so the system has been undergoing a combination of belt tightening and reviewing other ways to increase revenue, she said.

It received a combination of $352 million from the state and regional planning agency to close fiscal gaps in 2025 and 2026. State lawmakers are finalizing a $750 million loan in a budget trailer bill to be split between BART and three other San Francisco-area transit operators that will help close an expected gap in fiscal 2027.

“We are encouraged by that level of support,” Herhold said.

The combination of $1.6 million in federal funding, $250 million from the state and its cut of the state loan “should tide BART over,” until it hears back from voters on Senate Bill 63 — which would create a half-cent sales tax to fund BART and other regional transit operators — planned for the November ballot, Herhold said. It’s expected to bring in $331 million annually by 2031, she said.

The need for relief from the region’s congested roadways provided by BART was cited by rating agencies including KBRA in its Aug. 13 report.

“We are seeing worsening congestion on both the streets and the San Francisco-Oakland Bay Bridge,” Mathur said. “The bridge is already at 100% of where it was pre-pandemic, so the region really needs BART in order for it to function and for the economy to grow.”

Though BART hasn’t recovered to pre-pandemic days, it has experienced an increase in traffic — including a burst this week as the city of San Francisco required employees to return to in-person work four days a week, said Bryant Jenkins, managing principal at Sperry Capital.

The region’s congested road system couldn’t handle having BART’s 200,000 daily trips kicked back on to the roads, which is what would occur without the transit provider, Jenkins said.

“That would not work,” Jenkins said. “That is why the state legislature is willing to provide additional funding.”

Moody’s analysts said the region’s exceptionally large, growing tax base and wealthy service area underpin its rating.

“Lagging recovery contributes to large projected outyear budget shortfalls that will require new revenue or significant expenditure reductions,” Moody’s wrote, but the fiscal problems are weighed against a “capable management team with a history of prudent fiscal management, moderate capital needs that will be funded through voter-approved GO authorization and moderate pension and OPEB burdens.”

The rating further incorporates the above average legal strength of the general obligation bonds, including a statutory lien and “lock box,” Moody’s wrote.