- Subway operator is one of just two to tap muni credit line
- Agency is using short-term borrowing to cope with revenue drop
New York’s Metropolitan Transportation Authority borrowed $2.9 billion from the Federal Reserve’s emergency credit line for states and local governments, marking the second time the transit agency has turned to the central bank as it contends with a steep drop in ridership from Covid-19.
The transit agency sold payroll mobility tax bond-anticipation notes with a 1.33% coupon for those maturing in 2023 to the Fed’s Municipal Liquidity Facility, according to data compiled by Bloomberg. Aaron Donovan, a spokesperson for MTA, confirmed the sale in an email on Thursday.
The MTA has turned to short-term borrowings to close the budget gaps created by the pandemic and it seized on the chance to borrow from the Fed before the little-used credit line expires at the end of the month. The agency has warned that it will have to slash subway and bus service by 40% and chop commuter rail service by half if it doesn’t receive aid from Washington. Fares and tolls will increase and roughly 9,300 jobs will also be eliminated.
The Fed’s $500 billion municipal lending program was designed to serve as a lender of last resort for cities and states to ensure they could still raise cash if the bond-market froze up, as it did in March amid panic about the fallout of the pandemic. But it has barely been used because it charges high penalties, leaving the public market a better deal for virtually all local governments. Three-year benchmark municipal debt yields just 0.13%, according to Bloomberg BVAL.
The MTA — and the state of Illinois, the only other one to borrow from the Fed, based on central bank data last month — is a rare exception. Investors still demand high yields on the MTA’s bonds because of the agency’s financial strains. Some MTA debt due in 2023 traded at a nearly 2.2% yield on Thursday, about 2 percentage points higher than AAA rated bonds.
Bloomberg Markets
By Amanda Albright, Michelle Kaske, and Danielle Moran
December 10, 2020, 12:19 PM PST