MTA returns with a billion-dollar revenue bond refunding deal

Riders exit a New York Subway train at the Brooklyn Bridge station. The subway’s parent, the Metropolitan Transportation Authority, plans a $1 billion bond sale.

Bloomberg News

The New York Metropolitan Transportation Authority is set to price a $1 billion refunding deal this week on its transportation revenue bond credit.

The authority’s borrowing apparatus is maintaining a business-as-usual approach it embarks on a massive new capital program and fends off federal cuts.

“As many of the large New York state issuers, we try to be thoughtful and opportunistic in when we are in the market, but also we have a very substantial program and very substantial outstanding portfolio,” Olga Chernat, the MTA’s deputy chief of financial services, told The Bond Buyer.

The MTA’s constant stream of borrowing needs and opportunities for reoffering requires Chernat to juggle different credits and triangulate to the market’s interests. This week’s green transportation revenue bonds are an example of that strategy, she said.

The transportation revenue bond was once the MTA’s most-used credit, Chernat said, but as the agency added dedicated streams of revenue from the state, it scaled back its use of the TRB. Lately, the MTA has used the TRB more, but more “strategically,” and often in refundings, she said.

“We do think about what type of bonds we bring to the market, and with which frequency,” Chernat said. “Because we want to provide a diverse offering [not only different] structures, but also credits.”

The deal will refund outstanding bonds from various credits including TRBs, dedicated tax fund bonds and payroll mobility tax bonds that were issued as put bonds.

Depending on market conditions, the MTA may choose to refund TRBs that were issued as Build America Bonds. The agency hopes to achieve savings of around five to ten percent, Chernat said.

The retail order period is planned for Monday with an institutional order period on Tuesday.

Goldman Sachs is managing the deal with thirteen co-managers. The Public Resources Advisory Group and Backstrom McCarley Berry are co-municipal advisors, and Orrick and Bryant Rabbino are co-counsels. The climate bond certification is from First Environment, Inc.

The bonds are rated AA by Fitch Ratings and KBRA, A2 by Moody’s Ratings and A by S&P Global Ratings.

Both S&P and Moody’s upgraded the transportation revenue bond credit this summer.

“The upgrade reflected several factors,” S&P analyst Scott Shad said. “New York State’s decision to increase the payment payroll mobility tax for MTA capital program, the initial success of the congestion pricing program, further ridership recovery, maintenance of healthy liquidity levels. And then clarity regarding funding sources for their capital program, and also manageable protected out-year deficits from their July financial plan that they released.”

In other words, the MTA, which operates transit in New York City transit, two commuter railroads and a network of bridges and tunnels, is on something of a win streak.

New York state and city governments both increased their support to the MTA to fund its 2025-2029 capital plan.

The agency’s long-awaited congestion pricing tolls took effect in January and are on track to raise $500 million in 2025. The policy also reduced the number of cars entering Manhattan by 12% and reduced traffic injuries by 15%.

The MTA collected $4.97 billion of farebox revenue last year and projects $5.2 billion of farebox revenue this year. The agency’s ridership levels have been gradually increasing each year after the pandemic but fare collections remain short of 2019’s high of $6.35 billion.

The MTA’s board is laying the groundwork for fare hikes and toll increases to take effect in the beginning of 2026. The base subway and bus fare would rise 10 cents to $3, with a smorgasbord of other changes to multi-ride transit fares, hikes for commuter train services, and higher bridge and tunnel tolls.

Since President Donald Trump took office, the federal government has persistently targeted the MTA. The Federal Transit Administration attempted to rescind approval for congestion pricing, then threatened New York’s funding if the MTA didn’t stop collecting tolls.

Congestion pricing toll collections have continued uninterrupted so far.

In May, Transportation Secretary Sean Duffy demanded the MTA send him information about crime on the subway system, threatening to pull funds if the agency didn’t comply. In August, Duffy sent another letter, this time threatening to revoke 25% of federal grants to the MTA if it didn’t improve risks to worker safety.

The worker safety directive has a prominent place of disclosure in the deal’s preliminary official statement, on page 2, followed by threats of a strike on the Long Island Railroad, which could begin as soon as September 18.

The MTA’s leadership has struck a defiant tone about the feds, arguing the Trump administration is seeking to punish the MTA for the success of congestion pricing. The federal government’s attempt to end congestion pricing is still in federal court.

Federal funds account for $14 billion of the MTA’s 2025-2029 capital plan, Shad noted, and congestion pricing will fund $15 billion of capital improvements from the prior plan.

If the MTA loses that funding, “we would probably expect them to go back, reevaluate their capital program, analyze potential new funding sources, or alternatively, make cuts,” Shad said. “I think to the extent those weren’t implemented, that’d be something we continue to evaluate if it could impact credit quality longer term.”

Chernat said she hopes that investors consider the quality of the TRB’s credit structure and its high coverage when evaluating threats from the federal government.

“It’s a credit that is well insulated from those types of risks,” Chernat said.

The threat to congestion pricing revenue, while serious for the MTA’s 2020-2024 capital plan, has less impact on the MTA’s operations or ability to repay TRB bonds, Chernat added.

S&P’s rating report said “ongoing significant capital needs that require substantial additional debt to finance” are a “key credit weakness” of the MTA.

The MTA’s infrastructure needs $92 billion to maintain a state of good repair, according to New York State Comptroller Thomas DiNapoli. Its 2025-2029 capital plan is $68.4 billion, much of which will be funded through bonds.

The MTA has $49.7 billion of debt through its eight credits, many of which are secured by state revenues in lockbox accounts to support its capital plans.

The MTA’s borrowing for the rest of the year is largely related to outstanding debt, Chernat said.

She expects to be in the market soon with a reoffering on dedicated tax fund bonds to replace an expiring letter of credit. Later on, the MTA plans to bring Triborough Bridge and Tunnel Authority second subordinate bonds to repay outstanding bond anticipation notes.