MTA Refinances $220 Million in Bonds Despite Downgrade

The Metropolitan Transportation Authority refinanced nearly $220 million in bonds Tuesday with little apparent fallout from the decision by two rating agencies to downgrade their estimation of the agency's future credit-worthiness.

"We had a very successful sale," said Allan Lipsky, MTA deputy chief executive officer. All of the bonds were sold to five syndicates, headed by Goldman, Sachs & Co., which made "aggressive and very strong bids" for them, he said.

The highly rated bonds were sold at a discount rate of 5.143%, said acting MTA Treasurer Joya De Foor. They replace higher-interest bonds originally offered in 1992.

The MTA will realize an $11-million savings in interest costs because of the refinancing. The bonds are attractive to upper-income investors because the interest earned on them is exempt from state and federal income taxes.

Lipsky attributed the favorable response from Wall Street to MTA's sales tax base and the "protective structure that gives bondholders the first cut of the revenues." The state, which collects the penny-on-the-dollar sales tax for transit, sends the money to a representative of the bondholders. After the debt service is paid, MTA receives the remainder of the sales tax receipts.

The decision of two Wall Street rating agencies--Moody's Investors Service and Fitch IBCA Inc.--to lower the future outlook for MTA's credit rating to negative or alert had only minimal impact on the interest rate the agency paid, Lipsky said.

The rating agencies last week cited a variety of factors for their change in MTA's credit outlook. The most significant included the agency's history of "management instability" and the MTA board's recent decision to suspend work on extensions of the Red Line subway to the Eastside and Mid-City, and to halt construction of a light rail line from downtown Los Angeles to Pasadena.

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