November 20, 2007
Fitch Rates Bi-State Development Agency (MO-IL) Sales Tax Bonds ‘A’
Fitch Ratings assigns an 'A' rating to the approximately $20.8 million in Bi-State Development Agency of the Missouri Illinois Metropolitan District (Bi-State) mass transit sales tax appropriation refunding bonds (Metrolink Cross County Extension Project) series 2007. The bonds are expected to be sold through negotiation by Merrill Lynch & Co on or about Dec. 4. Bond proceeds will be used to refund the 2008 and 2009 principal payments on the agency's series 2002B bonds and pay the cost of issuance. In addition, Fitch affirms its 'A' rating on the agency's $414.1 million mass transit sales tax appropriation bonds, series 2002 A-C. The Rating Outlook is Stable.
Payments derived from a 1/4% sales tax, known as the Prop M sales tax, collected in the City of St. Louis and the County of St. Louis, pledged to the trust estate, secure the bonds. Under the memorandum of agreement, the city and county agree to pay (subject to annual appropriation) all monthly Prop M receipts to the trustee. After meeting monthly set-aside requirements for upcoming debt service payments and funding reserve deficiencies (if any), other expenses, and subordinate debt, Bi-State receives surplus Prop M payments and other non-pledged revenue sources to meet transit system operating and capital expenses.
The 'A' rating reflects an economic base with above-average income levels, strong debt service coverage by Prop M sales tax payments, proven demand and essentiality of Bi-State's transit services in the region, and the agency's established track record of meeting base transit system needs within a constrained financial environment. The rating also considers that Prop M sales tax payments are subject to annual appropriation and exhibit limited growth. The likelihood for non-appropriation is remote, given Prop M tax revenues are statutorily dedicated for transit purposes. Also, the county and the city have paid all collected tax revenues to Bi-State since the implementation of the Prop M sales tax in 1995.
Similar to other transit agencies, Bi-State needs to manage its operations within a constrained fiscal environment. Although completion of the Metrolink Cross County project has posed a challenge and further pressured the agency's finances as a result of additional leveraging required to complete the project, Bi-State has contained expense growth and implemented a fare increase.
While the agency's use of one-time measures, including reduction of near-term debt service obligations by moving a total of $18.3 million in 2008 and 2009 principal payments to 2034 as result of the series 2007 refunding bonds and deferral of this fiscal year's Other Post Employment Benefit actuarial contribution present some credit concerns, the agency is pursuing longer term financial strategies to achieve fiscal balance. This primarily includes seeking a voter referendum next year for additional 1/2% sales tax support in St. Louis County, which would also initiate collection of another 1/4% sales tax in the city of St. Louis. In the absence of additional funding support, Fitch expects Bi-State to maintain financial balance through a combination of service and non-service-related expense reductions and fare adjustments.
Between fiscal 2003 and 2007, Prop M sales tax collections grew 1.9% annually to $50.3 million. Fiscal 2007 sales tax collections cover maximum annual debt service (MADS) on the series 2002 and series 2007 senior bonds 1.7 times (x), while MADS coverage on the combined senior and subordinate series 2005A bonds is about 1.3x.
Bi-State, which was formed in 1949 under an interstate compact between the states of Missouri and Illinois, is responsible for the St. Louis region's fixed-route bus, paratransit, and Metrolink light rail system. In addition, the agency operates the Gateway Arch transportation system, parking garage, and riverboats and owns and operates the St. Louis Downtown-Parks Airport and surrounding industrial business park.