Chicago Transit Authority objects to Moody's credit downgrade
CHICAGO Oct 28 (Reuters) - The Chicago Transit Authority on Monday blasted Moody's Investors Service for downgrading the agency's credit rating, saying the move was not justified because revenue is growing.
The agency responsible for mass transit in Chicago also struck back at a plan, floated Monday by the head of the Regional Transportation Authority of northeastern Illinois, to take away the CTA's authority to issue bonds.
Moody's late on Friday cut the Aa3 rating on $2.9 billion of the CTA's sales tax revenue bonds one notch to A1 with a negative outlook. The ratings agency cited diminished political will to raise revenue amid growing capital needs and dwindling state and federal support.
Illinois' fiscal issues are directly affecting the CTA, delaying payment of bills to the transit agency, Moody's noted. "A backlog of pledged state matching payments, though recently reduced, will remain a long-term challenge and may be exacerbated by impending state income tax cuts and the state's massive pension deficits," Moody's said in a statement.
The CTA, which operates subway and bus service in Chicago, is the latest major debt issuer in Illinois hit with downgrade and negative outlook by Moody's. Pension and budget woes led to a cut in Illinois' rating to A3 in June, Chicago fell three notches to A3 in July, and Cook County, which includes the city of Chicago, was cut one notch to A1 in August.
The rating agency said the CTA's increasing pension challenges could strain its operating budget.
The CTA in its statement Monday sought to counter Moody's grim assessment. The CTA said it was determined to operate within its means and has no plans to seek additional funding. It also noted sales tax, fare and other revenue is growing.
"There is no justification for downgrading an entity with increasing revenues, stable operations, and manageable pension obligations," the agency said in a statement. "There has been no new fiscal change to CTA's position over the last year, and CTA strongly objects to this downgrade based on the facts."
Adding to the CTA's credit woes, the regional transit agency that over sees the CTA on Monday said it may try to take away the CTA's ability to issue bonds.
A memo on Monday from Chairman John Gates, chairman of the Regional Transportation Authority board, said the regional group is considering a move to serve as the central bonding agency for the region's transit. Gates in his memo said the plan is backed by Chicago Mayor Rahm Emanuel and the heads of suburban Chicago counties, and would seek to take advantage of RTA's higher, Aa3 credit rating.
Gates also said the RTA's borrowing capacity should be increased from $800 million to $5 billion to meet capital needs.
Gates' memo criticized the CTA for back-loading the principal payments on its $6 billion of outstanding debt, a practice that raises interest costs. He also said the CTA lacks bondholder security measures, such as a reserve fund requirement. Gates also noted the CTA was incurring more costs to sell its debt.
"In fact, for every billion dollars of bonds issued in the past 10 years, the CTA has spent nearly $2 million more on professional services than has the RTA," the memo said.
The CTA said the idea of consolidating bond issuance constituted a power grab by the RTA "that would hurt service, make it harder to reinvest in the system, and make the RTA answerable to no one."
Illinois lawmakers have been struggling to come up with a fix for the state's $100 billion unfunded pension liability, which is squeezing out funding for core state services such as education. The legislature is also facing a partial phase out, starting in 2015, of big income tax increases enacted in 2011.
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