Fitch Rates MTA's (NY) Revs 'A'; Outlook Stable

Fitch Ratings has assigned an 'A' rating to the Metropolitan Transportation Authority, New York's (MTA) $500,000,000 transportation revenue bonds, series 2011D.

At this time, Fitch also affirms the 'A' rating on approximately $14.7 billion in outstanding MTA transportation revenue bonds. The Rating Outlook is Stable.

KEY RATING DRIVERS:

--Strong Security Pledge: Gross lien on a diverse stream of pledged revenues to meet debt service payments;

--Strategic Importance: Essentiality of the MTA's transit network to the economy of the New York region and the demonstrated ability of the MTA and regional and federal partners to produce solutions aimed at closing projected budget gaps and capital needs;

--Highly Constrained Financial Operations: The MTA's financial operations are constrained given the extremely large operating profile and significant retiree and pension benefits. The MTA's operating subsidies are vulnerable to economic conditions and its ability to generate sufficient cash to adequately cover operations of the system despite high debt service coverage ratios is an ongoing hurdle;

--Extremely Large Capital Needs: The MTA has significant funding needs for the large $24 billion 2010-2014 MTA and TBTA Capital Programs and has the constant challenge of meeting funding needs for the program while maintaining financial flexibility;

--Growing Annual Debt Burden: Capacity to continue to leverage resources to fund expansion projects while meeting renewal and replacement needs may be limited in the future if projected financial performance does not come to fruition.

WHAT MAY TRIGGER A RATING ACTION:

--Inability to achieve operating efficiencies and implement other key elements of the cost reduction initiatives and/or maintaining ongoing state of good repair elements of the capital program;

--Significant cost overruns or delays in the capital program's mega-projects that would require additional funding;

--Additional service cuts or deferral of core capital projects that result in deterioration of key transportation services of the system;

--Deterioration or limited growth in dedicated tax subsidies.

SECURITY:

The transportation revenue bonds are primarily secured by operating receipts and operating subsidies, including transit and commuter rail fares and other operating revenues, surplus toll revenues, and certain dedicated tax sources, state and local operating subsidies, and reimbursements.

CREDIT UPDATE:

The MTA's recently released 2012-2015 November Financial Plan generally forecasts similar financial performance through 2013 but projects larger deficits in 2014 and 2015 of $122 million and $206 million, up from $54 million and $178 million, respectively. The larger than expected deficits are driven primarily by retiree and employee healthcare costs and pension costs that are expected to grow well beyond inflationary rates. The MTA currently budgets these expenses to increase by $880 million by 2015, which is expected to account for roughly 90% of the planned toll and fare increases in 2013 and 2015. While the MTA faces significant challenges, management has demonstrated the ability and continues to implement cost reductions and numerous operating efficiencies to offset expense growth outside of their control.

Additional risks to the plan include the ability to achieve a favorable outcome from the current labor negotiations, meet expected growth in operating subsides (dedicated tax sources), execute the currently proposed fare and toll increases in 2013 and 2015 and implement operating efficiencies. To the extent that any of these elements fail to reach current expectations, projected deficits could be significantly larger than currently estimated. While the MTA has a demonstrated history of closing outer-year deficits, it is Fitch's opinion that the options available for new revenue generation are fewer in the current environment; however, the MTA continues to explore and implement new operating efficiencies and cost reduction measures to close outer-year gaps.

The MTA's 2010-2014 $24 billion capital program is comprised of approximately $18.5 billion in core and TBTA projects on the existing system and $5.7 billion for expansion projects. As with prior capital programs, long-term debt is expected to finance a significant portion of the 2010-2014 capital program and the MTA must delicately balance debt financing for the capital program and ongoing operations, which have been historically constrained.

The MTA is responsible for North America's largest transit network, serving 2.6 billion riders annually. The authority's network is essential to the economic well-being of the region, handling 80% of all daily trips to Manhattan's business district.

For additional information related to the MTA, please see Fitch's press release 'Fitch Downgrades MTA's (NY) Revs to 'A', Outlook Revised to Stable' dated Sept. 8, 2011 and available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);

--'Tax Supported Rating Criteria' (Aug. 11, 2011).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://blogshots.org/www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832

Tax-Supported Rating Criteria

http://blogshots.org/www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

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