Metropolitan Atlanta Rapid Transit Authority's 2019 Sales Tax Bonds Rated 'AA+'; Other Ratings Affirmed

One or more of the credit ratings referenced within this article was assigned by deviating from S&P Global Ratings' published criteria. The application of an exception from our criteria does not necessarily result in a rating change. We believe that for certain mass transit entities that receive a majority of their revenue from dedicated taxes that are protected from external interference, the financial flexibility risks inherent in low farebox recovery (that is, the fraction of operating expenses met by the fares paid by passengers) are not as pronounced compared with entities without such characteristics. In this case, Metropolitan Atlanta Rapid Transit Authority receives over 50% of unrestricted revenues from locally generated tax sources. We therefore excepted this rating from certain provisions of our "Mass Transit Enterprise Ratings: Methodology And Assumptions," published Dec. 18, 2013, by not applying two rating caps described within the criteria related to the financial flexibility risks. Specifically, we do not apply the rating cap of 'a+' associated with the financial flexibility score of '4' or worse and we do not apply the rating cap of 'bb' associated with the combination of the financial flexibility score of '5' or '6' and management and governance score of '5', as specified in paragraph 10, chart 1, and table 2 of the above-mentioned criteria. In this case, without the criteria exception, the 'a+' cap would have applied, but the 'bb' cap would not have, as per our analysis of the credit under our mass transit criteria.
NEW YORK (S&P Global Ratings) May 24, 2019--S&P Global Ratings assigned its 'AA+' long-term rating to the Metropolitan Atlanta Rapid Transit Authority's (MARTA) series 2019 sales tax revenue bonds. At the same time, S&P Global Ratings affirmed its 'AA+' long-term rating and underlying rating (SPUR) on MARTA's sales tax revenue bonds outstanding. The outlook is stable.
"MARTA's underlying operational creditworthiness, as well as the stable revenue stream, supports the rating," said S&P Global Ratings credit analyst Tiffany Tribbitt. "Sales tax revenues benefit from the strong Atlanta economy, with regional growth forecast to continue to outpace that of the nation in the near term per IHS Markit forecasts."
Proceeds from the $140 million of bonds will reimburse working capital spent on bus procurement, rail car replacements, train control system upgrades, and other facility and system projects in line with the authority's capital improvement program (CIP).
A large, broad, and diverse economic area generates the sales taxes securing MARTA's debt. The area includes the Atlanta MSA, with a population of nearly 5.9 million. Georgia's capital city is the state's major economic hub and one of the most rapidly growing metropolitan areas in the county. Although high at 120 million riders in fiscal 2018, the authority's system ridership declined 7.5% over the past five fiscal years. We believe ridership levels will likely stabilize due to the substantial system expansions related to its More MARTA capital program.
The stable outlook reflects our expectation that, while pledged revenues will continue to fluctuate with economic cycles and debt issuance, the service area's broad and diverse tax base will continue to provide very strong debt service coverage. In addition, the outlook reflects our expectation that MARTA will maintain its general creditworthiness and issue debt in line with expectations. The authority's robust policies and practices and demonstrated adherence to them support this view. Therefore, we do not expect to raise or lower the rating within the next two years.
We could lower the rating if a significant decline in sales tax collections occurred or an expansion of the system's capital plan and bonding needs were to substantially affect coverage to levels we no longer consider very strong. In addition, material deterioration in MARTA's general creditworthiness could result in deterioration of the priority-lien rating.
While unexpected over the outlook horizon given the additional debt plans, should debt service coverage materially increase and stay at higher levels, assuming no change in all other credit factors including our view of the authority's general creditworthiness and the relationship to the obligor, we could raise the rating.
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