2008-10-29 03:05:01 -

- Fitch Ratings has assigned a long-term underlying rating of 'A' to approximately $250 million of bank bonds corresponding to variable rate demand notes (VRDNs), series 2005D issued by the Metropolitan Transportation Authority, NY (MTA, or the authority) as follows:

--$150,000,000 subseries 2005D-1 bonds;

--$100,000,000 subseries 2005D-2 bonds.

Fitch also confirms its underlying 'A' rating on $11.5 billion in outstanding transportation revenue bonds. The Rating Outlook is Stable.

Although approximately 20% of the MTA's $11.5 billion outstanding transportation revenue debt consists of VRDNs and approximately $121 million is currently held as bank bonds, the MTA's interest rate and term-out risk is manageable. The key risk to accommodate any increased principal and interest requirements in the near

term would be to operations, which are paid after debt service costs. The gross lien on revenues allows debt service coverage to be very strong. While debt service coverage has been at least 12.3 times since 2002, it could rapidly deteriorate in a scenario in which a significant portion of bonds were to have higher near term interest rates and more rapid principal amortization. The cure period for the reimbursement agreement associated with the letter of credit by Landesbank Hessen-Thuringen Girozentrale is 180 days. Bank rates are capped for the first 180 days at the base rate; the base rate is defined as the higher of the prime rate or the Fed funds rate plus 1% per annum. After 180 days the term loan rate begins which is set at the greater of the base rate plus 2% percent per annum or the maximum rate of 12%. In addition, principal amortization begins.

The transportation revenue bonds are primarily secured by operating receipts and operating subsidies, including transit and commuter rail fares and other operating revenues, surplus toll revenues, and certain dedicated tax sources, state and local operating subsidies, and reimbursements. The 'A' rating reflects the gross lien on pledged revenues, the essentiality and performance of the transit services supported by pledged revenues, the importance of the authority's transit network to the economy of the New York region, and a track record of prudent financial management.

Near-term credit risks include the strong potential for further declines in mortgage recording tax revenues given the downturn in regional housing prices and transactions and other regional tax subsidies due to the current national and regional economic downturn. Furthermore, loss of ridership and traffic due to city and regional job losses could impact bridge and tunnel operating revenues. Continued political risk associated with the long-term need for growing levels of public subsidy and periodic rate increases, and a continuing reliance on debt to finance a significant portion of the MTA's enormous and unending capital needs will be highlighted challenges given the current economic environment.

The MTA ended 2007 with a cash balance of $495 million and is expected to end 2008 with a balance of $344 million. The MTA's 2009-2012 financial plan projects net deficits prior to gap closing programs of $1.1 billion in 2009 growing to $2.3 billion in 2012. These deficits will very likely be larger now. Deterioration in the real estate market has reduced mortgage recording tax revenues by an estimated $201 million for 2008 and $242 million for 2009 combined with higher fuel and energy costs and lower state tax revenues have contributed to the funding gaps. To the extent the MTA is unable to identify new revenue sources and efficiencies, additional service and non-service related expense reductions may be needed to close its projected deficits and possibly reductions in the MTA's capital program spending.

The MTA is responsible for North America's largest transit network, serving 2.6 billion riders annually. The authority's network is essential to the economic well-being of the region, handling 80% of all daily trips to Manhattan's business district.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings
Chad Lewis, 212-908-0886 (New York)
Emari Kotake, 312-606-2308 (Chicago)
Cindy Stoller, 212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com