Fitch Rates Regional Transportation Authority, IL $247MM GOs 'AA'.

NEW YORK -- Fitch Ratings assigns an 'AA' rating to the Regional Transportation Authority's (Illinois) (RTA, or the authority) $247 million general obligation (GO) bonds, series 2006A. The series 2006A bonds are expected to price competitively on or about Sept. 13. The bonds will pay interest each Jan. 1 and July 1, beginning Jan. 1, 2007 and will mature each July 1, 2007-2035. In addition, Fitch affirms the 'AA' rating on $2.2 billion in outstanding RTA GO bonds. The Rating Outlook is Stable.

The 'AA' rating reflects RTA's growing and diverse service area; strong pledged sales tax support with high debt service coverage levels; the essentiality and demand for the transit services supported by pledged revenues; and solid operational and financial performance. Support from the State of Illinois provides additional protection to bondholders in the form of annual appropriations of public transportation funds, which supplement the ample coverage from the sales tax. In addition, annual state assistance payments, though not pledged to bondholders, are used by RTA to reimburse debt service on strategic capital improvement program (SCIP) bonds and, consequently, help enhance the authority's cash flow. Nevertheless, the system's sizable capital and ongoing operating needs and the inherent vulnerability of sales taxes in economic downturns pose some financial risk.

Sales tax revenues increased by 3.7% in 2005 to $700.4 million after a period of little growth between 2001 and 2004 due to the regional economic downturn. Similarly, system ridership grew by 3.8% in 2005 after posting a 1% average annual loss for the prior three years. Sales tax revenues are projected to grow by 2.8% in 2006 and likely will come in higher given collections through May are 8.5% higher than last year. Despite fare increases instituted this year by the Chicago Transit Authority and Metra, system ridership through June is 1.8% higher than last year, due in part to some travelers shifting from autos to transit in response to rising gasoline prices.

The RTA system continues to meet its requirement of covering at least 50% of expenses from system-generated revenues and has started to rebuild its cash balances after drawing them down earlier in the decade as part of its strategy to maintain support to its operating service boards in the face of constrained revenues. With the expected near-term recovery in revenues, RTA projects its cash balances should improve with its undesignated/unreserved balance equaling its policy of 5% of budgeted expenditures by 2008. Nevertheless, the RTA is seeking additional state funding to support the growing needs of the service boards.

As part of the statewide $12 billion Illinois FIRST capital initiative, the RTA's SCIP bond authorization increased by $260 million annually between 2000 and 2004 to $1.8 billion. Including the series 2006A bonds, the authority is essentially at its statutory debt limits with $1.8 billion in SCIP bonds outstanding and $705 million out of $800 million authorized for non-SCIP bonds. As part of RTA's efforts to secure the state's support this year for a new capital funding initiative, the authority is undertaking a comprehensive short- and long-range capital planning and public outreach effort, including the development of funding and financing strategies. In the meanwhile, RTA is progressing on a baseline $3.1 billion fiscal 2006-2010 capital program that is mainly focused on the maintenance of the existing system and is primarily funded with federal grants (76%) with RTA bond proceeds and pay-as-you go contributions, as well as state and other sources representing the balance.

Debt service coverage levels are expected to remain strong given the significant demand on pledged revenues to fund the operating needs of the transit network, which are paid after debt service. Debt service coverage against pledged sales tax revenues was 3.9 times (x) in 2005, while the addition of pledged state-provided public transportation funds raised debt service coverage to 4.9x. Debt service coverage of maximum annual debt service, including the series 2006A bonds, against 2005 sales tax revenues is 3.6x, while it is 4.4x against sales tax revenues and public transportation funds.

As the second largest transit system in the nation, the authority serves a population of approximately eight million and remains critical to the region's economic vitality. The service area includes the city of Chicago, suburban Cook County, and the collar counties of DuPage, Kane, Lake, McHenry, and Will. While regional economic growth has mirrored national patterns, sustained production and employment expansion have stabilized system demand.

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