KBRA Assigns AA Rating, Stable Outlook to Chicago Transit Authority, IL Sales Tax Receipts Revenue Refunding Bonds

NEW YORK-KBRA assigns a long-term rating of AA to the Chicago Transit Authority, IL (CTA) Sales Tax Receipts Revenue Refunding Bonds Series 2024A. Concurrently, KBRA affirms the long-term rating of AA assigned to outstanding CTA Sales Tax Receipts Revenue Bonds and the long-term AA- rating assigned to outstanding Second Lien Sales Tax Receipts Revenue Bonds. The Outlook on all debt is Stable.

Key Credit Considerations

The rating actions reflect the following key credit considerations:

Credit Positives

Pledged revenues derive from a broad-based sales and use tax levied in the regional transportation district and have historically provided strong debt service coverage.
The 2.0x First Lien and 1.50x Second Lien additional bond provisions provide sound protection against over-leveraging.
Historically consistent levels of funding reflect the essentiality of CTA mass transit services to the economic underpinnings of the Chicago metro area.

Credit Challenges

Pledged revenues (Sales Tax Receipts) are economically sensitive. The level of the combined state, county, city and Regional Transportation Authority (RTA) sales tax is already exceedingly high at 10.25%, leaving little flexibility for an increase.
Sales Tax Receipts Revenue Bonds are not secured by a debt service reserve fund.
Sales Tax Receipts can be intercepted for pension contributions or to satisfy the farebox revenue recovery ratio. Continued waivers of this ratio beyond 2025 are dependent upon actions of the State legislature.
Operating liquidity, based on unrestricted cash and cash equivalents, is thin.
CTA is projecting an operating shortfall of $538.952 million in FY 2026 and $642.343 million in FY 2027. There is currently no definitive plan in place to address these shortfalls.

The Stable Outlook reflects KBRA’s expectations that Sales Tax Receipts will continue to demonstrate limited sensitivity to economic cycles, and that combined lien coverage of maximum annual debt service from Sales tax and Real Estate Transfer Tax (RETT) revenues will remain above 2.0x in the absence of further exogenous shocks akin to the COVID-19 pandemic. The Outlook also considers the essentiality of transit services to the greater Chicago economy.

For Upgrade

Increased statutory allocation of pledged revenues, including a pledge of additional revenue sources, and increased RTA discretionary funds to CTA.
Significant and sustained improvement in debt service coverage.

For Downgrade

Significant decline in pledged revenues.
Significant decline in debt service coverage.

To access ratings and relevant documents, click here.

Methodologies

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1006823