New York's Metropolitan Transportation Authority remarkets SOFR notes

As New York's Metropolitan Transportation Authority stumbles toward a post-pandemic future, its finance team continues an orderly transition to meet a significant change in the short-term debt marketplace.

In September 2018, the MTA issued the municipal market's first tax-exempt transaction linked to secured overnight financing rate notes, the replacement for Libor, the London interbank offered rate).

On Thursday, J.P. Morgan Securities remarketed the MTA’s $82.475 million of transportation revenue variable-rate bonds consisting of Subseries 2002G-1h transportation revenue variable-rate refunding bonds SOFR notes, and Subseries 2012A-3 transportation revenue variable-rate bonds, SOFR tender notes.

“SOFR-based transactions are still relatively new in muniland,” John Hallacy, founder of John Hallacy Consulting LLC, told The Bond Buyer. “The tag-on level of additional spread is an important consideration.”

Ahead of the deal, the authority's long-term ratings of A3 by Moody’s Investors Service, BBB-plus by S&P Global Ratings, A-minus by Fitch Ratings and AA by Kroll Bond Rating Agency were affirmed or confirmed. Moody’s and S&P have stable outlooks on the credit while Fitch and KBRA have negative outlooks.

“Liquidity is adequate. Market access for the capital plan has been proven repeatedly and will continue to be,” Hallacy said. “The broad-based revenues the MTA receives are improving.”

Moody's (MCO) said the remarketing was not expected to have any adverse effects on the long-term credit quality of the bonds, and therefore had no effect on the MTA's ratings.

Drexel Hamilton LLC, Rice Financial Products Co. and Stern Brothers & Co. were co-managers on the deal.

The $32.475 million Subseries 2002G-1h non-callables was priced to yield 67% of SOFR plus 40 basis points with a maturity date of Nov. 1 2023, an average life of 1.26 years, and to yield 67% of SOFR plus 60 basis points with a maturity date of Nov. 1, 2026, an average life of 3.571 years.

The $50 million Subseries 2012A-3 due Nov. 15, 2042, was priced at 67% of SOFR plus 65 basis points with a mandatory tender date of April 1, 2026.

Since 2011, the MTA has sold about $42 billion of debt, with the most issuance occurring in 2012 and 2020 when it sold more than $6 billion in each of those years.

Upcoming muni offerings from the MTA include next week’s $651 million deal from the Triborough Bridge and Tunnel Authority to be priced by Ramirez & Co. on Thursday. Proceeds from the Series 2022A payroll mobility tax senior lien bonds will go to MTA-run bridges and tunnels. The deal is rated AA-plus by S&P, Fitch and KBRA based on the mobility tax credit.

Later in February, Morgan Stanley (MS) is expected to price the MTA’s Series 2002A dedicated tax fund bonds, Series 2022A. Proceeds are expected to pay off the MTA TRB 2020B BAN which is being held by the Municipal Liquidity Facility. Pricing is slated for Feb. 24.

Things have changed at the top for the MTA this year.

On Jan 20, the state Senate voted 56-7 to confirm Janno Lieber as the MTA’s new chairman and chief executive officer. In turn, Lieber named four transportation and public sector officials to the authority’s executive leadership team.

Kevin Willens will become MTA’s chief financial officer, responsible for managing the MTA’s budget and finances and accountable for developing the agency’s annual budget and four-year financial plan.

He replaces Robert Foran, who retired.

Willens is a familiar name in the muni industry. He has more than 35 years of experience in public finance, most recently as managing director and co-head of public finance at Goldman Sachs (GS).

He has provided investment banking expertise to the MTA for three decades, including as the MTA’s financial advisor for 10 years.

His work included developing new revenue sources, such as the regional mobility tax in 2009, designing the new Capital Lock-Box sales tax credit in 2021 to provide a cost-effective funding source for the MTA’s 2020-24 capital program, structuring innovative risk management instruments such as insurance-linked securities following Superstorm Sandy, and executing complex real estate transactions such as the Hudson Rail Yards financing.

“Having served the MTA for more than three decades on its financings, including 10 years as financial advisor, it is exciting to take the next step and come inside such a great institution,” Willens said in a statement.

Picking Willens was the right move, Lieber said in answer to a question from The Bond Buyer.

“The benefits are self-evident. You’ve got someone who knows the MTA financially, who has enormous credibility in the marketplace and who is known throughout the industry as a fabulous guy to work with, who gives good thoughtful advice, and is a problem solver,” Lieber said. "We’re thrilled that Kevin is joining the MTA as a second career. It’s reflecting his interest in public service after he served in the private sector for many years.”

Additionally, Paige Graves will serve as MTA general counsel, Chris Pangilinan will serve as vice president for paratransit and Mersida Ibric will serve as deputy chief administrative officer. Quemuel Arroyo, currently MTA chief accessibility officer, adds duties as special advisor to Lieber.

The new team will have its work cut out for itself amid what looks increasingly like a permanent shift in white collar fields toward working from home and incidents like the murder of Michelle Go raise doubts about the safety of the transit system.

“Safety in the system is of paramount importance. More ridership will return when this factor improves,” Hallacy said.

Fitch, which has a negative outlook on the credit, noted the MTA’s vulnerabilities.

“MTA ridership remains unstable and well below historic norm, which could pressure the assessment absent evidence of a sustained trend of improvement over the course of 2022,” Fitch said.

This month, the MTA got $6 billion from the federal government to offset coronavirus expenses. The grant from the Federal Transit Administration was the largest in its history and brought total federal aid to the MTA to over $14 billion.

“The transition from a higher level of federal funding will be a challenge. A change in the composition of Congress could deepen the challenge,” Hallacy said.

Kroll noted the MTA’s leadership has a demonstrated ability to navigate financial and political challenges.

“The MTA’s transportation infrastructure is essential to the New York metropolitan area economy. The last pillar is among the reasons KBRA continues to believe there will be ongoing financial support from the state and or federal governments to help MTA bridge its near-term operating and liquidity challenges,” the rating agency said.

One initiative is beginning to gain some traction as an evolution away from the MTA's traditional outer boroughs-to-Manhattan orientation.

Gov. Kathy Hochul unveiled the results of a year-long feasibility study that looked at the possibility of creating an Interborough Express project to connect communities in Brooklyn and Queens.

“The Interborough Express will connect Brooklyn and Queens, not only shaving time off commutes, but also making it easier to connect to subway lines across the route,” said Hochul, who had mentioned the project in her first State of the State address.

The results of the study indicate it is possible to accommodate passenger traffic alongside existing freight rail traffic, that there is significant demand, and that bus rapid transit, light rail, and heavy rail are all options in terms of the possible modes of transit.

The MTA's next step will be to conduct the required state and federal environmental reviews and hearings to determine the best path forward. The total cost of the project won’t be determined until the environmental review and design process is complete.

According to the study, up to seven out of 10 people served will be from communities of color, approximately one-half would come from households with no cars, and approximately one-third will be living in households at or below 150% of the federal poverty line.

The project could provide potential connections to up to 17 subway lines serving areas of Brooklyn and Queens while initial studies indicate up to 80,000 daily weekday riders with annual ridership of approximately 2.5 million. Travel times between Brooklyn and Queens could be reduced by up to 30 minutes each way, depending on travel distance.

Proposed service would operate at up to five-minute headways during the peak periods, with off-peak headways of up to 10 minutes at other times of the day. The number and location of stations along the 14-mile corridor will be determined as part of the forthcoming environmental, planning, and engineering studies.

Additionally, transportation planners believe the new service would work in concert with the Cross-Harbor Rail Freight Tunnel project.

“The Interborough Express is a creative proposal and a critical step towards our shared goal of providing greater connectivity for New Yorkers living in transit deserts as well as much-needed economic development,” New York Mayor Eric Adams said in a statement.