CHICAGO -- Moody's Investors Service has raised the rating on the Regional Transportation Authority in Northeastern Illinois to A1 from A in anticipation of a $100 million general obligation bond sale this week.
Frederick Ollett, the authority's assistant executive director for finance and administration, said the bond issue is expected to be priced Wednesday in a negotiated deal headed by Merrill Lynch & Co., with the closing scheduled for Nov. 19.
He added that, despite the upgrade, insurance is still being considered for the bonds, which are secured by local and state sales tax revenues.
In upgrading the bonds last Friday, Moody's pointed to "the essential nature of mass transit service in the Chicago metropolitan area" that allows the system to collect more than 50% of its operating revenues from passenger fares. It also cited the "strong willingness" of the authority to follow through with a planned capital expenditure program despite the financial difficulties being experienced by the Chicago Transit Authority -- one of the three transportation entities that make up the authority.
For fiscal 1992, which begins Jan. 1, the Chicago authority faces a $57 million gap in its operating budget. Bill Utter, a spokesman for that authority, said cuts in administration, fare increases, and service reductions are being considered to eliminate the gap.
"It would be easy to divert internal funds to operations needs from capital needs," said Paul Devine, a vice president and manager of the Great Lakes region at Moody's. "We're impressed [the authority] is going to take a more long-term approach and maintain the level of capital expenditures to bring the system up to standards."
Last Friday, Standard & Poor's Corp. affirmed a AA-minus rating for the issue.
The deal is the second the Regional Transportation Authority will sell out of its total bond authorization of $1 billion to pay for capital projects over the next five to seven years. In May 1990, the authority sold a $100 million issue.
Out of the $800 million of remaining authorization, the use of bond proceeds from $500 million needs to be approved by Gov. Jim Edgar of Illinois before issuance. Last month, the governor approved projects connected to $200 million of these so-called Strategic Capital Improvement Program bonds, according to Dave Wood, general counsel at the state's Bureau of the Budget. Once the bonds are issued, the state will give the authority additional assistance payments.
Mr. Wood pointed out that although the additional state payments cannot be pledged as security for debt service, they essentially offset the increase in debt service. The bonds will carry the same security as the GOs, he added.
Mr. Ollett said the authority could issue some of the bonds in the first quarter of 1992.
The authority has identified capital needs of almost $2 billion from 1991 to 1995. Over a 10-year period, the authority's capital plan would cost $8 billion.
