KBRA has revised its outlook to negative on Chicago Transit Authority's AA-minus-rated Transportation Infrastructure Finance and Innovation Act bonds.
The U.S. Department of Transportation's TIFIA program is the sole lender and bondholder for the Series 2015 and Series 2016A bonds.
KBRA in Tuesday's action said the rating was affirmed based on the robust level of debt service coverage from a gross lien on transit fare and pass revenues, additional bonds test and springing debt service reserve funding requirement on the bonds.
But it raised concerns about the lack of a long-term funding solution for the CTA's 2026 and 2027 operating budget deficits, projected to be $539 million and $642 million, respectively.
In its credit opinion, KBRA noted that the CTA will use all its remaining pandemic relief funds to close its 2025 budget deficit and cover some of its first quarter operating expenses in 2026.
If the Illinois legislature fails to approve additional funding this spring, "CTA may be forced to implement drastic cost cutting measures," KBRA said, "which have the potential to reverse the improving trend in CTA ridership and farebox revenues evident since 2022.".
Even if the General Assembly passes
The General Assembly is reportedly considering several other funding measures. Those include repurposing some federal highway funds for transit; an EV charging station tax; a per-mile vehicle use tax; and hikes in tolls, vehicle registration fees and city parking taxes.
Meanwhile, the CTA's parent, the Regional Transportation Authority, has targeted $113 million in incremental funds that could be raised through savings efficiencies and a 10% fare increase across its three Chicago-area transit systems: CTA, Metra commuter rail and the Pace suburban bus service.
The rating agency warned that it "may take negative rating action if alternative revenue sources are not identified by the state legislature by May 31, 2025, or if MADS coverage on any of the TIFIA loans falls below 10.0x, triggering the springing reserve requirement."
In 2024, CTA ridership was only at 68% of pre-pandemic levels. As of Dec. 31, 2024, farebox revenues had recovered to 60% of pre-pandemic levels.
KBRA assigns its AA rating and stable outlook to the CTA's first-lien sales tax revenue bonds, affirmed in November.
