New York’s MTA Takes a Ridership Hit as Investors Hang On

(Bloomberg) -- New York’s network of subways, buses and commuter trains is in a ridership falloff and the $3.9 trillion municipal-bond market that helps raise capital for such public systems has ground to a halt.

That won’t stop the Metropolitan Transportation Authority, the largest mass-transit provider in the U.S., investors say. The MTA provides a vital service for the New York City region. Bondholders need to look beyond the immediate challenges the agency is facing, said Guy Davidson, chief investment officer of municipal investments at AllianceBernstein.

“The headlines suggest it’s very vulnerable,” said Davidson, whose firm holds MTA bonds among its $47.1 billion of munis. “When you dig a little deeper, the resources are really strong.”

The coronavirus pandemic has decimated MTA’s ridership and pushed the agency to seek $4 billion from the federal government and tap $1 billion of commercial bank loans. Even before the virus escalated, the agency faced potential budget deficits and anticipated taking on more debt -- on top of the $45.3 billion it already owes -- to upgrade the system and improve service.

Investor Confidence

Still, a history of state support and MTA’s strong management give investors confidence that over the long term, the agency will repay its obligations, Davidson said.

“It would really have to have years of this type of wrenching problems and adjusting down its expenses until it was in a new revenue world before it would be threatened with bankruptcy,” Davidson said.

Vanguard Group, BlackRock Inc., AllianceBernstein and Fidelity Investments are some of the biggest holders of MTA debt among municipal mutual funds, according to data compiled by Bloomberg. Vanguard, Blackrock and Fidelity spokespeople declined to comment on the MTA’s fiscal troubles.

To help decrease the spread of the virus, commuters are working from home while schools, most businesses and cultural and entertainment venues are shuttered.

“They’re under a lot of pressure under even good times,” said Howard Cure, director of municipal bond research at Evercore Wealth Management. “The last thing they need are these kind of draconian cuts in their ridership.”

National Solution

Tuesday’s morning ridership on Metro-North Railroad plunged 90% and Long Island Railroad fell 67% compared with a year earlier. Subway usage dropped 60% on Monday.

Those sharp declines prompted Pat Foye, the MTA’s chief executive officer, to send a letter Tuesday to the state’s Congressional delegation, seeking $4 billion to help cover lost fare box revenue and additional sanitation costs to help combat the virus. The MTA estimates it’s losing $87 million a week.

“We are bleeding money,” Foye said in an interview Wednesday afternoon with local television station PIX11. “Obviously this is a national crisis that requires a national solution.”

While the MTA is under financial stress, access to short-term capital shouldn’t be a problem, according to Davidson and Cure. The agency has $3.86 billion of liquidity resources, including the $1 billion in bank lines of credit, a cash balance of nearly $1.4 billion and internal flexible funds of $1.1 billion, according to a disclosure statement sent to bondholders on Wednesday.

“Luckily they’re a big issuer with a lot of friends in the banking community,” Cure said. “So as long as the banks are able to, I think they’re going to supply liquidity.”

Added Backstop

Along with MTA’s balance sheet, the state and city have a history of directing money to the agency or finding new revenue sources during economic downturns.

“You have the added backstop of the fact that it’s an essential service that’s important to both New York City and New York state’s economies and without it, it would certainly drive up costs across the city,” Davidson said.

The MTA’s woes are just one example of stress facing state and local debt broadly. The growing economic fallout combined with the turmoil in global financial markets has prompted sell offs, including municipal debt with benchmark 10-year yields surging in the worst rout for the market since 1984.

Investors are demanding additional yield to buy MTA debt, as they have with nearly all municipal borrowers. MTA debt maturing in 2022 traded Tuesday at an average yield of about 2.6%, up from an average 1.2% last month, data compiled by Bloomberg show.

Adding to the stress, MTA is at risk of a credit downgrade. Moody’s Investors Service rates the agency A1 with a negative outlook and S&P Global Ratings assigns its A grade with a negative outlook.

On Thursday, New York Governor Andrew Cuomo reiterated his support for the state run-agency that provides 2.6 billion trips a year on subways, buses and commuter rail lines for 15.3 million people in New York City through Long Island, the southeastern part of the state and Connecticut. New York Governor reiterated his support of the

“The MTA will continue running,” Cuomo said. “They are an essential service on the essential services list and as for the revenue we are going to have to make do.”

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