MBTA sales tax bonds ratings affirmed by KBRA with stable outlook

Traders Union
All News
Financial News
MBTA bonds ratings affirmed

Highlights

Kroll Bond Rating Agency affirmed its ratings on MBTA sales tax bonds with a stable outlook, citing strong flow of funds protections for bondholders.
Pledged sales tax revenues for FY 2025 provide $1.20 billion base, ensuring 3.22x senior and 2.44x combined debt service coverage for MBTA bonds.
KBRA stated upgrades are unlikely for senior bonds at AAA or subordinated bonds, with downgrades possible if leverage and sales tax base deteriorate significantly.

Rating rationale and coverage profile

As reported by Kroll Bond Rating Agency, the rating affirmations reflect a flow of funds structure that requires pledged revenues to be used for debt service before they can be made available for other purposes, insulating bondholders from MBTA operations.

KBRA says pledged revenues provide strong coverage of both senior and combined sales tax bond maximum annual debt service, while residual amounts continue to provide a substantial recurring source of financial support for capital and operating needs. The agency also points to limited pledged revenue volatility because of the base revenue amount, an inflation-adjusted floor for pledged sales tax receipts, which stands at $1.20 billion for FY 2025 and provides coverage of 3.22x senior and 2.44x combined maximum annual debt service.

Stable demographic trends and favorable socio-economic characteristics of the tax base also support growth and stability in pledged receipts, according to the rating agency.

Risks and implications for transport financing

KBRA identifies sensitivity to economic cycles as the main credit challenge for the pledged revenue stream, indicating that a downturn could weigh on sales tax collections that back the bonds.

For future rating movement, the agency says an upgrade is not applicable for the senior sales tax bonds given the existing AAA level, and it does not anticipate an upgrade for the subordinated sales tax bonds linked to U.S. Department of Transportation loans. A downgrade could occur if debt service coverage declines significantly because of very large increases in sales tax bond leverage combined with significant and prolonged deterioration in the sales tax base.

Our earlier article on KBRA’s rating affirmation for First Busey Corporation explained why the agency kept a Stable outlook while the lender integrates its Cross First Bankshares acquisition. We noted that the ratings were underpinned by consistent core earnings, diversified revenues and a low-cost deposit base, with key watchpoints including post-deal capital ratios and the acquisition-driven uptick in criticized and classified loans.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.