Moody's upgrades CTA and RTA in wake of Illinois transit bill

Key Illinois transit legislation received a rating endorsement last week, when Moody's Ratings upgraded the Chicago Transit Authority to Aa3 from A1 and upgraded the Chicago-area Regional Transportation Authority to Aa2 from Aa3. The outlooks for both are now stable.

In upgrading the CTA, Moody's cited expected improved financial and operating performance following the passage and signing of the Northern Illinois Transit Authority Act, a key piece of transit funding and reform legislation.

"The Aa3 rating on the CTA's sales tax bonds reflects an expectation that sales taxes levied by the RTA within the Chicago metropolitan area will remain strong," Moody's said in a rating report. "Coverage of debt service by regional sales taxes alone is expected to exceed 2.5x; coverage is even stronger when combining regional taxes with pledged state funding."

Fiscal year 2025 regional and state-shared sales taxes have risen 11% year-over-year, Moody's noted, and the seven-year compound average growth rate is nearly 6.5%. With the RTA board expected to vote to increase its regional sales tax by 0.25% next summer, as authorized by the NITA Act, pledged sales taxes should increase about 30%.

The RTA's upgrade reflects the rating agency's expectation of increased financial and operating stability for the service boards operating under the RTA's umbrella ? which in addition to the CTA are Metra commuter rail and Pace suburban bus service ? after Pritzker signed the NITA Act into law.

"We expect new funding that the RTA will ultimately distribute to its service boards, including the Chicago Transit Authority, exceeds the operating gap the service providers had collectively been projecting through fiscal 2028," Moody's said in its rating report. "The new law authorizes an increase in the RTA's sales tax, which will directly increase the revenue available to pay the RTA's outstanding bonds."

The RTA's Aa2 rating also reflects the authority's broad sales tax base, robust sales tax performance and very high debt service coverage from both regional sales taxes and pledged state funding, Moody's said. The authority's regional sales taxes surpass 10x debt service, and the regional sales tax rate adjustment authorized by the NITA Act will increase pledged sales taxes nearly 30%.

The stable outlook stems from expectations of very strong debt service coverage on the RTA's approximately $1 billion of outstanding bonds and budgetary stability provided by the new transit legislation.

Moody's said it could upgrade the CTA further with a substantial improvement in liquidity or more moderate leverage relative to revenue.

Factors that could lead to a downgrade for the CTA include a dip in liquidity to under 40 days' operating expenses or rising long-term liabilities above 400% of revenue, or the emergence of new budgetary challenges.

The RTA could see a downgrade if its transit service boards' financial operations deteriorate, if regional sales tax performance weakens or if there is a major increase in the RTA's debt burden.

The umbrella authority could get another upgrade if its service boards demonstrate improved operating metrics, such as stronger liquidity, Moody's said.

The CTA and RTA did not respond to requests for comment by press time.

In tandem with the CTA upgrade, Moody's upgraded to A1 from A2 the rating on the Chicago Public Building Commission's $40 million of Series 2006 refunding revenue bonds, payable from revenue received by the commission from the CTA pursuant to a lease agreement.