Fitch Rates MTA, NY Transportation Revenue Bonds 'A'.

NEW YORK -- Fitch assigns an 'A' rating to the approximately $500 million Metropolitan Transportation Authority, NY (MTA, or the authority) transportation revenue bonds series 2005B, which are expected to sell via negotiation by a Lehman Brothers-led syndicate on or about June 20. Bond proceeds will be used to finance transit and commuter rail capital projects and pay the costs of issuance. In addition, Fitch affirms the 'A' rating on $7.2 billion in outstanding transportation revenue bonds. The Rating Outlook on the transportation revenue bonds is Stable.

The transportation revenue bonds are primarily secured by operating receipts and operating subsidies. Key credit strengths include the gross lien on pledged revenues, the essentiality and performance of the transit services supported by pledged revenues, the importance of the authority's transit network to the economy of the New York region, and a track record of prudent financial management. Key credit risks include periodic financial challenges, political risk associated with the long-term need for growing levels of public subsidy and periodic rate increases, and a continuing reliance on debt to finance a significant portion of the MTA's enormous and unending capital needs.

The gross lien on revenues allows debt service coverage to be very strong. As part of the authority's 2002 debt restructuring, the MTA merged the separate transit and commuter facilities securities' pledged revenues under the consolidated transportation revenue bonds. Debt service coverage would have been at least 13.9 times (x) in 2000-2001 on a consolidated basis, with higher coverage levels in 2002-2003 associated with the debt restructuring and the 2003 fare and toll increase. As the MTA issues additional bonds to finance its transit and commuter rail capital needs, debt service coverage is expected to fall to around a still strong 8.0x-12.0x during the 2005-2008 financial plan period from 16.4x in 2004. Nevertheless, the combined debt service and operating needs of the MTA thoroughly consume the authority's vast annual resources, as surpluses generated in one year are typically used to cover deficits in succeeding years, a common practice among transit systems.

Following the State of New York's enactment of the fiscal 2006 budget, which provides additional dedicated subsidies to the MTA through increases in the regional sales tax, mortgage recording tax, and certain statewide motor vehicle fees, the MTA Board approved a revised $21.1 billion 2005-2009 capital program. Primarily reflecting reduced funding levels for expansion projects, the revised program is 24% less than the $27.8 billion proposal initially put forward by the authority in September 2004. The capital program, with nearly 80% of resources going to maintain and upgrade the existing transit and commuter system, continues the MTA's focus on state of good repair. However, reduced funding levels for expansion projects will require the MTA to slow progress and/or prioritize these multi-billion-dollar initiatives.

Similar to the 2000-2004 capital program, debt finances a significant portion of 2005-2009 capital project costs. However, new money bonds represent a lower 44% of the 2005-2009 capital program compared to 55% for the 2000-2004 capital program. While the additional subsidies provided by the state benefit the MTA and are expected to be leveraged for the 2005-2009 capital program, the lower percentage of debt reflects the practical limits on the amount of new money bonds that the authority can issue given its already high debt burden.

The 2005-2009 capital program requires the approval of the MTA Capital Program Review Board (CPRB). Pending CPRB action, the MTA is progressing projects as part of the approved $20.7 billion 2000-2004 capital program. It also has adopted interim first- and second-quarter 2005 capital programs totaling $840.7 million, funded from available cash and grants.

The added revenues generated from the 2005 fare and toll increase, combined with most of last year's surplus funds and certain expense reduction measures, are expected to yield a small cash surplus in 2005. The authority's currently available 2006-2008 financial plan and budget deficit estimates were developed prior to enactment of the state's fiscal 2006 budget and do not reflect the additional subsidies and the revised capital program. A recently released report by the state comptroller estimates that the combined effects from the additional subsidies, higher tax collections, a planned 2007 fare and toll increase, and cost-containment measures should contribute to a balanced operating budget through 2007; however, budget gaps are projected thereafter. As part of the development of the 2006 budget and the 2006-2009 financial plan to be released later this year, Fitch expects the MTA to further identify the budget impacts associated with the additional subsidies, the projected near-term debt service burden to finance the 2005-2009 capital program, and measures to maintain fiscal balance, including service and non-service related cost-containment measures and fare and toll adjustments.

The MTA is responsible for North America's largest transit network, serving 2.3 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.

Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies, and relevant policies and procedures are also available from this site, at all times. This document will remain on the free site for seven days.