Sound Transit receives second upgrade in credit rating
For the second time in two weeks, Sound Transit was rewarded for its stellar financial performance with a credit rating upgrade from one of the nation’s three major independent municipal bond rating agencies.
Standard & Poor’s announced that they have upgraded Sound Transit’s subordinate lien bond rating to AAA, signaling strong investor confidence in Sound Transit’s financial health and outlook. Standard & Poor's also affirmed the AAA rating for Sound Transit’s senior lien bonds, a rating that was upgraded to the S&P’s highest grade back in 2006.
“Two credit upgrades in less than a month is unassailable proof taxpayers can have total confidence in Sound Transit’s financial health," said Sound Transit Board Chair and Pierce County Executive John Ladenburg. “Now we can get even more bang for the buck as we move forward with regional transit projects.”
On October 18th, Sound Transit received a credit rating upgrade from Moody’s Investor Service. Moody's upgraded Sound Transit's senior lien bond rating from Aa3 to Aa2, their third highest credit rating.
The two upgrades from both independent rating agencies is especially good news for the Puget Sound region’s taxpayers and signals Sound Transit's strong financial health. Specifically, it will lower Sound Transit’s cost of borrowing money, enabling the public’s investment in regional transit projects and services to stretch further.
Standard and Poor’s has credit ratings on approximately $34 trillion of outstanding debt in more than 100 countries. Standard & Poor’s analytical teams concentrate on corporate finance, financial institutions, insurance companies, states and municipalities, sovereign governments around the globe.
The Standard & Poor’s report cited a strong regional economy and continued economic diversification as significant indicators of a stable revenue stream and financial outlook for Sound Transit. “The authority (Sound Transit) has a high-quality pledged revenue stream from a very deep and broad economic base that encompasses roughly 40 percent of the state’s population,” said Standard & Poor’s credit analyst Rob Williams. The report was in connection with Sound Transit’s plans to issue new bonds in the coming months. On November 1st, the Sound Transit Finance Committee forwarded to the Board of Directors its recommendation that the Board approve the sale of $550 million subordinate lien bonds to support some remaining projects in the Sound Move plan voters approved in 1996.
Sound Transit's bond ratings have continually improved over the last decade. The agency has applied lessons learned over the past decade to the development of the Sound Transit 2 plan that is part of the Roads & Transit ballot measure that regional voters will consider on Nov. 6. Last month, the independent Expert Review Panel appointed by the State of Washington issued a final letter affirming the thoroughness of the agency’s Sound Transit 2 work, including its estimates of project costs.
The Sound Transit 2 financial plan anticipates paying cash for 60 percent of the proposed investments and selling bonds to cover the remaining 40 percent. Bonds sales would be about $3.9 billion out of the plan’s capital costs of $10.8 billion in 2006 dollars. This compares to buying a house with a down payment of around 60 percent, when most homeowners sign mortgages with down payments of 0 to 20 percent.
As a result of Sound Transit’s strong bond rating, the amount of interest Sound Transit would pay for debt service on future borrowing will be lower than most public agencies in the region. Sound Transit borrows money at very competitive interest rates and uses 30-year bonds with terms similar to those used by other public agencies. For Sound Transit 2, the agency would issue 30-year bonds incrementally over the 20-year period for delivering the projects, paying off the last bonds, issued as late as 2027, by 2057.
The 40 percent of the Sound Transit 2 projects that would be paid for by bonds is relatively conservative. In comparison, the Seattle Monorail Project would have issued bonds totaling more than 100 percent of its capital costs. Sound Transit would pay interest of about $1.20 for every dollar borrowed for Sound Transit 2, a very competitive rate. The monorail project would have paid an estimated $4.70 in interest for every dollar borrowed.
If approved November 6th, the Roads and Transit package would build more than 50 miles of light rail extensions north to Lynnwood, east to Bellevue and Redmond, and south from SeaTac Airport to Tacoma, as well as improve commuter rail facilities and expand express bus service. These investments would expand Sound Transit’s daily ridership to more than 350,000 by 2030.
For more information on the Sound Transit 2 plan, visit www.soundtransit.org/st2.
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Sound Transit’s regional network of express buses, commuter rail, light rail and transit facilities connects communities in King, Pierce and Snohomish counties.