UPDATE 2-NY MTA suffers new blow with debt rating downgrade

(Recasts, adds details, byline)

By Joan Gralla

NEW YORK, Feb 3 (BestGrowthStock) – The New York Metropolitan
Transportation Authority’s battle to shore up its finances
suffered another blow on Wednesday after some of its debt was
downgraded, which market sources said forced the agency to
delay a bond sale.

Moody’s Investors Service downgraded its rating by
one-notch, affecting $12.6 billion of outstanding debt, citing
a surprising shortfall in new tax revenue. The move will drive
up borrowing costs for the cash-strapped agency.

In a a supplement to its statement for an offering of Build
America Bonds, the MTA on Wednesday said it expects a special
payroll tax aimed at helping to plug a deficit to be about $350
million below estimates for 2010 made in December.

Market sources said the MTA delayed the $609 million
offering of taxable Build America Bonds that was planned for
Wednesday.

An MTA official declined to comment.

The downgrade to A3 places the MTA’s rating four notches
above speculative, or junk status. Moody’s said its outlook is
stable.

The MTA, the biggest public transit system in the United
States with about 9 million riders a day, has been in the midst
of public hearings on a plan to reduce service, including cuts
in service and staff.

The new tax, known as the payroll mobility tax, which was
the cornerstone of a state rescue plan that was supposed to
avert a “doomsday” budget plan for the MTA, also could fall
much as $200 million a year short of estimates after 2010.

“The MTA is considering a variety of cost-saving and other
measures in addition to those proposed in the December plan to
deal with the anticipated additional revenue shortfalls in its
operating budget,” the agency said in its latest disclosure.

Tax revenues for New York state and New York City have
shriveled during the recession and Governor David Paterson and
Mayor Michael Bloomberg have repeatedly said they cannot afford
to give the MTA more funds.

Paterson, who last spring devised a bailout that included
the new payroll tax, told reporters the underperforming levy
was “causing the MTA and inevitably the state some rather
egregious problems.”

In December, the MTA’s unionized transit workers won an 11
percent pay hike over three years in an arbitration that the
agency says it cannot afford. In January, the MTA’s new
chairman, Jay Walder, said the agency wasted 15 cents of every
dollar it collects, and vowed a top-to-bottom shake-up.

Transit advocates have pleaded with the MTA to take federal
dollars from the stimulus plan to avoid harsh service cuts,
which include clipping rides for the disabled, but the agency
instead says it will spend the money on capital projects.

Bloomberg told reporters on Wednesday that he did not know
if an extension of the No. 7 subway line in Manhattan would be
open by 2013 as planned. “This was done with the city’s money;
the state never came through with anything,” he said.

So far, Moody’s, which says the MTA’s budget is short
nearly $400 million, has taken the harshest view of the MTA’s
transportation revenue bonds, which are just one type of its
debt.

The latest Moody’s rating is one notch below Fitch Ratings
and Standard & Poor’s.

Fitch on Jan. 28 affirmed its A rating on the
transportation revenue bonds but assigned it a negative
outlook. Standard and Poor’s on Jan. 28 gave the transportation
revenue bonds an A rating with a stable outlook.

Investment Advice

(Additional reporting by Ciara Linnane; Editing by Leslie
Adler)

UPDATE 2-NY MTA suffers new blow with debt rating downgrade