The joint powers board that operates Caltrain, a heavy rail commuter line between San Jose and San Francisco, received a one-notch ratings boost to A-plus from S&P Global Ratings.
The upgrade affects $72.6 million in outstanding farebook box revenues, consisting of $47.6 million in farebox revenue bonds and $25 million for subordinate revolving line of credit, issued by the Peninsula Corridor Joint Powers Board that operates the commuter line.
The outlook is negative.
S&P analysts pointed to the application of its updated not-for-profit transportation criteria and expected significant tax support for the upgrade.
The JPB entered the pandemic financially and operationally strong with generally high debt service coverage, which was 3.9 times in fiscal 2019, despite a history of some volatility; generally stable ridership and a strong liquidity position, S&P analysts wrote.
Management expects ridership to remain materially depressed for the remainder of fiscal 2020 and into fiscal 2021, at roughly 93% lower than fiscal 2019 levels, S&P analysts wrote. But it expects the rail line will experience better revenue stability once Measure RR sales tax collections begin in July 2021 for fiscal 2022, reducing the board's reliance on revenues sensitive to ridership changes to fund operations and replacing less stable annual member agency contributions with sales taxes that analysts expect could largely eliminate the board's persistent structural budget deficits.
The board will use a combined $49 million in CARES Act funds and reserves to achieve a balanced budget for fiscal 2021. The board also expects to issue a revenue anticipation note to address cash flow needs that will be taken out by a long-term financing secured by Measure RR sales.
“The negative outlook reflects the significant financial and operational challenges posed by the ongoing pandemic and our view that credit deterioration is possible, particularly if ridership remains materially depressed and expected sales tax revenues are materially lower than forecast,” S&P analysts wrote.
S&P revised its outlook on U.S. transportation infrastructure to negative in March due to the COVID-19 pandemic. The coronavirus response, including the approval of two vaccines, was cited as a first step toward a return to social and economic normality, which would boost mass transit ridership broadly.
The bonds are secured by JPB’s gross farebox revenues, before expenses are paid. Total ridership for fiscal 2020, ending June 30, decreased 21.3% to 14 million from 17.8 million in fiscal 2019 as a result of ridership declining roughly 95% in March and remaining near that materially depressed level for the remainder of fiscal 2020 (March-June) with little improvement into the current fiscal year.
The pledged revenue consists of fares, parking and shuttle receipts from operating its system, but excludes all federal, state and local grants.
The debt service reserve surety policy, provided by Assured Guaranty, satisfies the debt service reserve requirement for the board’s farebox revenue bonds.
