Chicago Transit Authority plans return to market with $575M deal

Wells Fargo Securities will price for the Chicago Transit Authority $575 million of sales tax receipts bonds on Thursday.

The $525 million of Series 2026A sales tax receipts revenue and refunding bonds and $50 million of Series 2026B sales tax receipts refunding bonds will finance projects from the agency's capital improvement program and fund a tender for certain CTA Series 2017 second lien sales tax receipts revenue bonds and Series 2020B sales tax receipts revenue refunding bonds.

The tender offer expires Tuesday.

The bonds, secured by a gross pledge of sales tax receipts, are federally tax-exempt but state taxable.

Sales tax receipts include the CTA's share of sales and use taxes imposed by the Regional Transportation Authority and those imposed and collected by the state, and state funds dedicated to public transportation.

Pledged revenues have nearly doubled over the past five years, driven by strong post-pandemic economic growth and the collection of internet and cannabis sales taxes, according to an online investor presentation. Sales tax revenues distributed to the CTA are expected to reach a 10-year high of $1.17 billion in FY2025.

Wells Fargo (WFC) is the senior manager and lead dealer manager on the transaction. The financial advisors are Columbia Capital Management and RSI Group. Co-bond counsel are Katten Muchin Rosenman LLP and Clark Hill PLC, according to the preliminary official statement.

The bonds are structured so CTA bondholders get paid prior to other CTA expenses and obligations, according to the investor presentation.

Following the issuance of the Series 2026 bonds, first lien MADS coverage is expected to exceed 6.4x. Combined first and second lien MADS coverage will exceed 4.29x, per the presentation.

The Series 2026 bonds are subject to optional redemption and the Series 2026A bonds are subject to mandatory sinking fund redemption.

The second lien Series 2026A bonds are rated A-plus with a stable outlook by S&P Global Ratings and AA-minus with a positive outlook by KBRA.

The first lien Series 2026B bonds are rated AA with a stable outlook by S&P and AA with a positive outlook by KBRA.

S&P said in a Jan. 16 rating report that its stable outlook reflects an expectation of steady coverage that will remain supportive of the very strong first-lien and strong second-lien assessment.

The rating agency does not expect that to change even as CTA prepares to issue $1.7 billion of debt over the next five years to finance its CIP.

The transit agency has approximately $1.35 billion of sales tax receipts revenue bonds outstanding, and $1.45 billion of sales and transfer tax receipts revenue bonds outstanding.

The outlook "further reflects our expectation that the RTA, followed by [Northern Illinois Transit Authority] effective June 1, 2026, will maintain its historically consistent funding support of the CTA," S&P said.

KBRA said in a Jan. 20 rating report that its positive outlook results from the Illinois General Assembly's approval of SB 2111, which increases funding for the RTA and its three service boards, including the CTA.

Under the Northern Illinois Transit Authority Act, after June 1, 2026, the CTA may not issue new debt. According to the investor presentation, the new NITA board will set annual budgets for the service boards, as well as a five-year capital program and a two-year financial plan.

The CTA's $6.75 billion 2026-30 CIP includes bus system electrification, state of good repair initiatives for transit stations and expansion plans, according to the investor presentation.

Of that $6.75 billion, $3.8 billion or 56% will go to the Red Line extension project; $978 million or 14% will go to bond repayment; $555 million will go to rail rolling stock; $439 million will go to bus rolling stock; $245 million will go to the all stations program; $176 million for infrastructure safety; $133 million will go to electric bus facilities; and $425 million for other purposes.

"The CTA estimates it will receive over $500 million in additional pledged sales tax receipts annually beginning in the second half of FY2026, which should address the previously anticipated FY2026 operating shortfall and potentially improve future debt service coverage metrics depending upon the sizing and cadence of planned future debt issuance," KBRA noted in its rating report.

S&P said it would lower CTA's ratings if it sees pledged revenue declines and additional borrowing that materially weakens MADS coverage, which S&P views as unlikely.

It could raise the rating on the first-lien sales tax revenue bonds if the RTA's general creditworthiness improves and if first-lien coverage materially improves. The rating agency could raise the rating on the CTA's second-lien sales tax revenue bonds if MADS coverage improves, it said.

S&P also noted that while environmental, social and governance factors are credit neutral in its CTA analysis, Chicago is well-positioned on climate risk.

"Long term, we think Chicago fares better than many other large U.S. cities in that it has abundant access to fresh water and is not significantly exposed to risks common to many peer cities, such as hurricanes or wildfires," S&P said.

Moody's Ratings rates the CTA Aa3 with a stable outlook after an upgrade in December.

Fitch Ratings rates the CTA BBB with a stable outlook.

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