Los Angeles County Metropolitan Transportation Authority, California

Transcription

1 September 18, 2008 Los Angeles County Metropolitan Transportation Authority, California Primary Credit Analyst: Ian Carroll, San Francisco (1) ; Secondary Credit Analyst: Robert Williams, San Francisco (1) ; Table Of Contents Rationale Outlook Debt Derivative Profile 1 Standard & Poor's. All rights reserved. No reprint or dissemination without S&P s permission. See Terms of Use/Disclaimer on the last page.

2 Los Angeles County Metropolitan Transportation Authority, California Credit Profile Los Angeles Cnty Metro Transp Auth Sales Tax rev rfdg bnds (Proposition A First Tier Senior) ser 2008-A1 due 07/01/2031 Los Angeles Cnty Metro Transp Auth Sales Tax rev rfdg bnds (Proposition A First Tier Senior) ser 2008-A2 Los Angeles Cnty Metro Transp Auth Sales Tax rev rfdg bnds (Proposition A First Tier Senior) ser 2008-A3 due 07/01/2031 Los Angeles Cnty Metro Transp Auth Sales Tax rev rfdg bnds (Proposition A First Tier Senior) ser 2008-A4 due 07/01/2031 Rationale Standard & Poor's Ratings Services affirmed its 'AAA' rating and underlying rating (SPUR) on Los Angeles County Metropolitan Transportation Authority (LACTMA), Calif.'s Proposition A sales tax revenue bonds. In addition, Standard & Poor's affirmed its 'AAA/A-1+' rating on the authority's Proposition A revenue refunding bonds, series 2008-A1 to A4. Rating factors include: The breadth of the Los Angeles County economy, with a growing population of more than 10 million residents; A very stable trend in sales tax revenue collections, with 5% average annual growth and only a 0.5% decline in 2002; and Strong legal restrictions against additional bonds, including an effective 2.46x additional bonds test (ABT), and a reliance on revenues remaining after the payment of debt service for subsidization of transit operations. The bonds are secured by a gross pledge of Proposition A first-tier senior sales tax revenues. Proposition A sales taxes, approved by county voters in 1980, are collected at a 0.5% rate on retail sales throughout Los Angeles County. The tax has no sunset provision. Separately, LACMTA collects an additional 0.5% sales tax pursuant to Proposition C that secures $1.2 billion in 'AA' rated subordinate bonds with a weaker 1.3x ABT. Additionally, a debt service reserve fund secures the bonds. The authority recently sold refunding bonds, and including these 2008 refunding bonds, there will be $1.67 billion in parity debt outstanding. The 2008 variable rate demand obligations (VRDOs) were issued to refund the authority's existing auction rate securities. Liquidity is provided pursuant to a standby bond purchase agreement (SBPA) provided by Bank of America and Dexia Credit Local. Variable exposure for the 2008 debt is managed with interest rate swaps first entered into in 2005 and amended in 2008, although key credit considerations remain unchanged and the debt derivative profile assigned by Standard & Poor's remains '2' on a four-point scale where '1' represents the lowest risk. The size and stability of the Los Angeles County economy is a key credit strength. Pledged revenue is collected Standard & Poor s RatingsDirect September 18,

3 Los Angeles County Metropolitan Transportation Authority, California throughout Los Angeles County and is applicable to all retail sales with certain exceptions, such as groceries. The population of more than 10 million represents an 11% increase since 1998, when the population was 9.2 million. Leading employment sectors are international trade, tourism, motion picture/television production, technology, and professional services. Although there was a dramatic reduction in manufacturing in the early 1990s, particularly in the aerospace industry, the county is still the leading manufacturing county in the nation, providing almost half a million jobs in the sector tied to apparel, food, metal fabrication, and computer and electronic products. Sales tax revenue collections have been very stable, with only a single, small decline in On average since 1996, sales tax revenues have grown 5.1% annually, reaching $686 million in 2007, up from $403 million in After a 25% allocation to local governments, $514.6 million in pledged revenue remained. In 2008, based on an unaudited number for the year ended June 30, pledged revenue totaled $516.9 million. During the economic recession in 2002, sales taxes in Los Angeles County declined only 0.5%, compared to much greater declines in other major U.S. counties. The last substantial decline was in 1992, when the loss of much of the region's aerospace industry led to an 8.3% drop. In the current economic climate, there is no evidence so far of a decline in revenue. Historic revenue was sufficient to provide 3.5x maximum annual debt service (MADS) coverage based on 2007 audited numbers. Revenues are flat for 2008 based on unaudited numbers for the fiscal year. There are no immediate plans to issue additional debt. The short-term component of the rating represents the likelihood of payment of tenders and reflects a liquidity facility provided by Dexia Credit Local (A-1+) for the series 2008A-1 and A-2 bonds and a liquidity facility provided by Bank of America (A-1+) for the series 2008A-3 and 2008B bonds. The liquidity facilities, which are SBPAs, shall provide coverage for principal and 35 days of interest at the 12% maximum rate for the purchase price of bonds that are not successfully remarketed. The Dexia and Bank of America SBPAs are expected to terminate Sept. 12, 2011, unless earlier terminated or extended according to their terms. The bonds will initially bear interest in the weekly rate mode and may be converted to the daily, flexible, term, or fixed rate modes. The Dexia SBPA will enhance bonds in the weekly rate mode only and the Bank of America SBPA will enhance bonds in the daily and weekly rate modes. During the daily and weekly interest rate modes the bondholders may optionally tender their bonds upon providing appropriate notice. The bonds are subject to mandatory tender upon the following occurrences: On the first business day following the last day of a flexible and term rate periods; On the date the bonds are converted to another interest rate mode, except between daily and weekly-modes on coverage for SBPAs; On the effective date of a substitute liquidity facility; On the fifth business day preceding the expiration date of the SBPA; On a business day days following the trustee's receipt of notice that a notice termination event has occurred under the SBPA; On the date specified by the authority not less than 20 days following trustee's receipt of such notice; and On the fifth business day following trustee's receipt of notice that a notice of non-reinstatement has occurred. The SBPA providers' obligation to purchase unremarketed tendered bonds will be terminated without notice to the bondholders upon the occurrence of various events in the SBPA. Additionally, bonds may be called due to optional or mandatory redemption as fully outlined in the bond documents. 3

4 Los Angeles County Metropolitan Transportation Authority, California Outlook The stable outlook reflects Standard & Poor's explanation that regional economic stability and the breadth of the Los Angeles County economy should support continued exceptional credit strengths, mainly steady growth in pledged revenue. Additionally, a restrictive additional bonds test and a reliance on remaining sales taxes for transportation subsidies should support continued high debt service coverage levels. Debt Derivative Profile Standard & Poor's assigned LACMTA's swaps a Debt Derivative Profile (DDP) score of '2' on a four-point scale where '1' represents the lowest risk. A score of '2' indicates that LACMTA's swap program is neutral from a credit standpoint. Additionally, the DDP score reflects: A low-to-moderate degree of termination risk, reflecting a good ratings trigger spread; Low counterparty risk, due to the counterparties' high creditworthiness as well as strong collateral posting requirements; Good economic viability of the swap portfolio; and Formal swap management policies that adequately address risks. With the 2008 refunding of the 2005 auction rate securities, LACMTA has made slight changes to its swap portfolio; these changes do no affect the credit of LACMTA's Proposition A bonds. LACMTA has $1.67 billion in debt secured by Proposition A sales tax revenues, including commercial paper (CP). General revenues, including sales tax revenues remaining after operations, secure an additional $256 million in revenue bonds. The 1992 bonds and the 2004 gateway general revenue bonds were both issued as variable-rate debt but have been swapped to fixed-rate debt. The 1992 swap was entered into with AIG Financial Products Corp. (A-/Watch Dev) with a notional amount of $98.7 million and as of Sept. 17, 2008; this swap remained unchanged, but a termination payment, if made, would be about $3 million. LACMTA receives the actual floating rate on the bonds and pays a fixed rate of 5.86% through Pursuant to the 2004 swap with Bank of Montreal (A+), LACMTA pays 3.5% and receives 64% of LIBOR plus 21 basis points on the amortizing notional amount of $197 million through The expiration date and bonds' final maturity is the same for both swaps. The series 2005 bonds were auction rate securities that were synthetically fixed by entering into identical swaps with counterparties Bank of Montreal and Deutsche Bank (AA-) and these swaps will be assigned to the 2008 bonds that were used to refund the 2005 debt. Swap provisions are being modified, however, mainly to remove XL swap insurance and to adjust the schedule definition of bonds to include 2008 bonds' principal and interest. Swap management policies adopted by LACMTA's board include high minimum ratings of counterparties, collateral posting requirements, and optional early termination. LACMTA's debt management policy, moreover, establishes that net variable-rate exposure will be no more than 20% of debt outstanding and variable-rate bonds, whether hedged or not, and will not be more than 50% of debt outstanding. Ratings Detail (As Of September 18, 2008) Standard & Poor s RatingsDirect September 18,

5 Los Angeles County Metropolitan Transportation Authority, California Ratings Detail (As Of September 18, 2008) (cont.) Los Angeles Cnty Metro Transp Auth sales tax (Proposition A) 1st tier sr (wrap of insured) (MBIA & FSA) (SEC MKT) Unenhanced Rating AAA(SPUR)/Stable Affirmed Los Angeles Cnty Metro Transp Auth Sales Tax rev rfdg bnds (Proposition A First Tier Senior) ser 2008B due 07/01/2031 Long Term Rating AAA/Stable Affirmed Los Angeles Cnty Metro Transp Auth proposition A 1st tier sr sales tax Unenhanced Rating AAA(SPUR)/Stable Affirmed Los Angeles Cnty Metro Transp Auth sales tax (Proposition A) 1st tier sr Unenhanced Rating AAA(SPUR)/Stable Affirmed Many issues are enhanced by bond insurance. 5

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