Fitch Rates MTA, New York's $410MM Dedicated Tax Fund Bonds 'A+'; Outlook Stable.

NEW YORK -- Fitch assigns an 'A+' rating to the approximately $410 million Metropolitan Transportation Authority, NY (MTA, or the authority) Dedicated Tax Fund (DTF) bonds, series 2006B. The bonds are expected to be sold by a Citigroup-led syndicate on or about Oct. 24, 2006. Bond proceeds will be used to finance a portion of the MTA's transit and commuter rail capital program and to pay the cost of issuance. In addition, Fitch affirms the 'A+' rating on $3.6 billion in outstanding DTF bonds. The Rating Outlook is Stable.

The 'A+' rating is based on the amount and diversity of pledged revenues, which are subject to annual appropriation by the state legislature, to the DTF for debt service on its bonds. It also reflects an expectation that the MTA will continue to maintain sufficient financial flexibility within the DTF to cover debt service amply on the DTF bonds, as well as provide sizable transfers to the authority that are primarily used to support transit and commuter rail operating needs.

The bonds are secured by a trust estate primarily consisting of the pledged amounts account, which includes all of MTA's portion of Dedicated Mass Transportation Trust Fund (MTTF) receipts and all of MTA's portion of Metropolitan Mass Transportation Operating Assistance Account (MMTOA) receipts. Although tax revenues allocated to the DTF are subject to annual appropriation by the state legislature, this risk is hedged, since the state has in place a two-year appropriation mechanism for a portion of the DTF revenue stream.

DTF tax revenues are sensitive to economic cycles and are affected from time to time by legislative actions that add exemptions to the tax base and/or lowers certain tax rates. However, the state's track record has been to provide a generally reliable stream of revenues as demonstrated by increasing allocations of existing revenue sources and providing new sources to help offset the effects of tax base and rate changes and to meet growing operating and capital needs.

The monthly debt service requirement is first met by all MTTF receipts, which are derived from an allocation of statewide petroleum business and motor fuels taxes and motor vehicle fees. To the extent MTTF receipts are not sufficient, MMTOA receipts, which are derived from regional sales and franchise taxes and statewide franchise and petroleum business taxes, are then applied to debt service. Surplus MTTF and MMTOA receipts are available for any subordinated DTF debt service, then to the MTA for operating and capital needs of the transit and commuter rail systems, including debt service on the MTA's transportation revenue bonds (rated 'A' by Fitch), which are also secured by the authority's operating receipts and other sources.

From 2001-2005, debt service coverage against MTTF receipts and against both MTTF and MMTOA receipts was at least 2.8 times (x) and 7.7x, respectively and is expected to be 2.7x and 8.6x, respectively in 2006. As the MTA issues additional bonds to finance its transit and commuter rail capital needs, debt service coverage is expected to fall, but still be strong based on the authority's need to sustain operating subsidies which are paid after debt service. This necessity provides practical limits to the amount of debt issued in the future. During the 2007-2010 financial plan period DTF debt service coverage is expected to be at least 1.8x against MTTF receipts and 5.8x against both MTTF and MMTOA receipts.

The MTA is expected to end 2006 with a net cash surplus after set asides for pension liability reduction, security initiatives and other measures of $711 million and is projecting a modest $36 million net cash surplus in 2007. The authority's 2007-2010 financial plan projects deficits prior to gap closing and other policy measures of $1.0 billion in 2008 growing to $2.1 billion by 2010. MTA attributes these projected gaps to increasing debt service, benefit and pension obligations and lower real estate tax revenues. Without additional subsidy support, Fitch expects the MTA, similar to prior years, to close its projected deficits through a combination of fare and toll increases and service and non-service related expense reductions.

The MTA's $21.3 billion 2005-2009 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 and normal replacement. The MTA is responsible for North America's largest transit network, serving 2.3 billion annual riders. 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.

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