Indianapolis’ public transit operator heads into the market Wednesday with an improved outlook as it borrows to finance the purchase of hybrid buses.
The Indianapolis Public Transportation Corp. known as IndyGo will issue $21 million of 12-year local income tax revenue bonds through the Indianapolis Local Public Improvement Bond Bank Wednesday. Stifel is the senior manager and Loop Capital Markets is co-senior manager.
Proceeds will finance the purchase of 27 40-foot hybrid low floor buses. A large-scale expansion that will increase service by 70% by 2024 is being funded by a local income tax approved by voters in 2016 and set by the city-county board in 2017. The tax generates about $64 million annually.
The agency, which operates 31 bus routes, last spring postponed the June 2020 implementation of a new grid-based bus network due to the coronavirus outbreak.
The bonds are secured by a first-lien pledge on the voter-approved special purpose 0.25% transportation local income tax revenues collected within Marion County.
Ahead of the sale, S&P Global Ratings revised its outlook to stable from negative on the AA-minus rated 2018 bonds and the current issue, which “reflects our view of an improvement in IndyGo's general credit quality," said S&P analyst Anna Uboytseva.
The rating criteria factors in both the strength and stability of the pledged revenues as well as the general quality of IndyGo.
The rating benefits from Marion County's broad and diverse tax base, a dedicated voter-approved revenue stream that supports the debt, and “our view that personal income taxes have historically demonstrated very low volatility, with no volatility at the local level,” S&P said.
The state has estimated income tax distributions to county units for 2021 at $513 million, up 6.7% from 2020, but the effect of the pandemic won’t be known for some time as economic events have a two-year lag time due to the filing and certification and distribution of income taxes.
Softening the near-term impact of the COVID-19 pandemic, IndyGo received $42 million from the March, 2020, CARES Act and $21.5 million from the December CRRSAA. The agency expects about $50 million from the American Rescue Plan.
S&P said it could raise the rating once all expansion-related projects are complete, if the coverage stabilizes above four times maximum annual debt service on all bonds outstanding and is accompanied by an improvement in or stability of the operating entity.
If debt service coverage on the bonds declines further than projected by even conservative estimates, or if the operating entity's credit characteristics deteriorate, a downgrade could occur.
