KBRA Assigns AA Rating to Chicago Transit Authority Sales Tax Bonds Series 2026A (Second Lien) and 2026B (First Lien); Outlook Positive
NEW YORK–(BUSINESS WIRE)–#creditratingagency–KBRA assigns a long-term rating of AA to the Chicago Transit Authority, IL’s (CTA) Second Lien Sales Tax Receipts Revenue Project and Refunding Bonds, Series 2026A and Sales Tax Receipts Revenue Refunding Bonds, Series 2026B. Concurrently, KBRA affirms the AA rating on the CTA’s outstanding Sales Tax Receipts Revenue Bonds (First Lien) and Second Lien Sales Tax Receipts Revenue Bonds. The Outlook for both liens remains Positive.
Proceeds of the Series 2026A Bonds will: i) finance a portion of the CTA’s 2026 – 2030 capital improvement program (CIP), including the Red Line Extension, Red and Purple Line Modernization, and the purchase of new rail cars, ii) repurchase and cancel, by means of a voluntary tender offer, certain maturities of the CTA’s outstanding Second Lien Sales Tax Receipts Revenue Bonds, Series 2017, iii) fund capitalized interest, and iv) pay the costs of issuance. Proceeds of the Series 2026B Bonds will be used to repurchase and cancel, by means of a voluntary tender offer certain maturities of the CTA’s outstanding Sales Tax Receipts Revenue Refunding Bonds, Series 202B, and pay the costs of issuance.
CTA’s Sales Tax Receipts Revenue Bonds (approximately $1.35 billion outstanding) are payable from a first lien on Sales Tax Receipts (First Lien Bonds), which include: i) CTA’s share of the Regional Transportation Authority (RTA) sales taxes (both formula-based and discretionary); ii) replacement revenues paid to the RTA by the State of Illinois (the State Sales Tax); and iii) public transportation fund (PTF) state matching fund revenues. The First Lien Bonds are on parity with the CTA’s $1.45 billion outstanding Series 2008A and Series 2008B Sales and Transfer Tax Receipts Revenue Bonds (the 2008 Pension Bonds). The 2008 Pension Bonds are payable first from Real Estate Transfer Tax (RETT) Receipts received from the City of Chicago (the City) and second, to the extent RETT Receipts are insufficient, a first lien on Sales Tax Receipts. RETT Receipts are pledged solely to the 2008 Pension Bonds. The CTA’s $1.01 billion outstanding Second Lien Bonds are payable from Sales Tax Receipts on a subordinate basis to the First Lien Bonds and the 2008 Pension Bonds. Neither Sales Tax Bond lien is secured by a debt service reserve fund.
Maintenance of the Positive Outlook reflects the Illinois legislature’s approval of Senate Bill 2111, which materially increases operating and capital funding for RTA and the three Service Boards it oversees. The Authority estimates it will receive over $500 million in additional Pledged Sales Tax Receipts annually beginning in the second half of FY 2026 (partial year), which should address the anticipated FY 2026 operating shortfall and potentially improve future debt service coverage metrics depending upon the sizing and cadence of planned future debt issuance.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
Credit Positives
- Pledged Sales Tax Receipts, strengthened by the recent passage of Senate Bill 2111, are derived from a broad-based sales and use tax levied within the economically diverse Chicago metropolitan area and demonstrate an established growth trend with minimal volatility.
- Strong additional bonds test provisions (2.0x for the First Lien and 1.50x for the Second Lien) and reliance on residual Sales Tax Receipts to support operations provide sound protection against over-leveraging.
- The essentiality of CTA mass transit services to the metropolitan area’s economy results in consistent support from non-operating funds to maintain service levels.
Credit Challenges
- The aggregate 10.50% rate of combined state, county, city and RTA sales tax within the City (including the proposed 0.25% increase in the RTA sales tax) is among the nation’s highest, leaving little flexibility for an increase.
- CTA’s large capital program, which includes the $5.75 billion Red Line extension, entails the expected issuance of significant additional debt.
Rating Sensitivities
For Upgrade:
- Sustained improvement in debt service coverage resulting from increased or additional pledged revenues or a material decrease in outstanding debt.
For Downgrade:
- Decline in pledged revenues resulting in a material decrease in debt service coverage.
- Increase in debt resulting in a material decrease in debt service coverage.
To access ratings and relevant documents, click here.
Methodologies
- Public Finance: U.S. Special Tax Revenue Bond Rating Methodology
- ESG Global Rating Methodology
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), one of the major credit rating agencies (CRA), is a full-service CRA 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 (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.
Doc ID: 1013096
Contacts
Analytical Contacts
Peter Stettler, Senior Director (Lead Analyst)
+1 312-680-4170
peter.stettler@kbra.com
Linda Vanderperre, Managing Director
+1 646-731-2482
linda.vanderperre@kbra.com
Jonathan Harris, Senior Director
+1 646-731-1235
jonathan.harris@kbra.com
Douglas Kilcommons, Managing Director (Rating Committee Chair)
+1 646-731-3341
douglas.kilcommons@kbra.com
Business Development Contacts
William Baneky, Managing Director
+1 646-731-2409
william.baneky@kbra.com
James Kissane, Senior Director
+1 646-731-2380
james.kissane@kbra.com
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