Metropolitan Atlanta Rapid Transit Authority Bonds Outlook To Negative From Stable On Decreased Ridership

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.
FARMERS BRANCH (S&P Global Ratings) March 25, 2020--S&P Global Ratings revised its outlook on Metropolitan Atlanta Rapid Transit Authority's (MARTA) sales revenue bonds to negative from stable. At the same time, S&P Global Ratings affirmed its 'AA+' long-term rating and underlying rating (SPUR) on the bonds.
S&P Global Ratings also assigned its 'AA+' long-term rating, and negative outlook, to MARTA's $130 million series 2020A sales tax revenue bonds.
A combination of pledged revenue from a 1% sales tax and certain ad valorem taxes on motor vehicles collected in Fulton, DeKalb, and Clayton counties secures the authority's $2.26 billion in sales tax bonds outstanding. All receipts securing the bonds are collected monthly and remitted to the bond trustee for debt service payment before distribution to MARTA for operations. Proceeds from the series 2020A sales tax revenue bond 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).
MARTA's underlying operational creditworthiness as well as the strength of the pledged revenue stream supports the rating. The authority finished 2019 with a surplus of approximately $7 million and is budgeted for break-even results in 2020. We expect the system's credit quality will continue to support debt service coverage.
"However, the outlook revision reflects our belief that there is a one-in-three chance that decreased consumer spending and ridership due to the COVID-19 outbreak and slowdown in economic activity could pressure the rating within the next two years," said S&P Global Ratings credit analyst Jennifer Garza.
Key credit considerations include:
  • A broad and diverse local economy, supported by the strength of the Atlanta metropolitan statistical area (MSA);
  • A revenue source we view as having low volatility with contractions of 9.8% and 10.7% during the two previous recessions;
  • Very strong pledged revenue coverage providing 3.55x maximum annual debt service (MADS) that we anticipate will support debt service despite uncertainty brought on by the COVID-19 epidemic and the current recession ; and
  • A linkage we view as having a limited relationship to the obligor's creditworthiness.
In our view, the authority's general creditworthiness does not constrain the rating.
Deterioration in MARTA's general creditworthiness due to material declines in liquidity, net operating performance, and ridership could occur within the two-year outlook. Deterioration of MARTA's the general creditworthiness could stress and constrain the priority-lien rating. Furthermore, a significant decline in sales tax collections or an expansion of the system's capital plan and bonding needs that substantially reduces coverage to levels we no longer consider very strong also could pressure the priority-lien rating.
We could revise the outlook to stable if the economic and financial factors that support the general creditworthiness of the system and if pledged revenue coverage stabilize and remain commensurate with that of similarly rated peers.
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