KBRA revises outlook upward on CTA TIFIA loans

KBRA has revised upward the outlook on the Chicago Transit Authority's Series 2015 and 2016 Transportation Infrastructure Finance and Innovation Act loans to stable from negative, and affirmed the AA-minus long-term rating on the loans.

"The outlook revision reflects the Illinois legislature's approval of Senate Bill 2111, which materially increases operating and capital funding for the Regional Transportation Authority and the three service boards it oversees": the CTA, Metra commuter rail and Pace suburban bus service, KBRA said in a release Wednesday.

The $1.5 billion SB 2111, or the Northern Illinois Transit Authority Act, provided both the governance reforms required by lawmakers and the funding sought by transit agencies and transit advocates to avert a fiscal cliff for public transit in Chicagoland.

The law will result in over $500 million in additional sales tax receipts annually flowing to the CTA starting in the second half of fiscal year 2026, helping to bridge the transit system's operating gap, according to the rating agency.

KBRA said its rating reflects "robust coverage" of TIFIA loan debt service due to a strong gross revenue pledge: a gross lien on farebox revenues, deposited daily into the trustee-held Farebox Pledged Revenues Account.

The revenue pledge and the security provisions of the April 2014 TIFIA loan master trust indenture are credit positives, KBRA said, as is the CTA's key position within the infrastructure of the greater Chicago area.

KBRA Senior Director Peter Stettler noted by email that the revenue pledge separates the loans from the operations of the CTA.

There is also "a strong additional bonds test of 4.0x maximum annual debt service and a springing debt service reserve requirement should coverage on a loan decline to below 10.0x," he said.

The rating agency noted that the NITA Act "provides significant ongoing operating and capital resources to CTA," although it warned that service cuts prompted by funding shortages "could interrupt or reverse" the CTA's current trend of ridership recovery.

"Based on the provisions of SB 2111, we believe CTA should receive sufficient revenues in the near- to medium-term that makes such a decline in resources unlikely," Stettler said, stressing that the bill's passage was the main driver of the outlook revision.

KBRA could upgrade the CTA in the event of better system liquidity or consistent annual increases in total operating revenue that outweigh growth in operating expenditures, the rating agency said.

It could downgrade the transit system if the CTA experiences declines in liquidity or "a sustained trend of structurally unbalanced financial operations," KBRA said.

The TIFIA loans are backed by farebox revenues. CTA also issues sales tax revenue bonds; KBRA rates the first lien sales tax bonds AA with a positive outlook it assigned in December, also citing passage of the NITA act.

CTA spokespeople did not respond to questions by press time.