MBTA’s credit downgrade not discouraging for T riders, officials

Although the Massachusetts Bay Transportation Authority faced a credit downgrade in November, T riders and officials said they have faith in the MBTA’s continued service and ability to regain its financial footing.

Moody’s Investors Service downgraded the credit rating of the MBTA for various financial issues that have taken place during the last 10 years, according to a Nov. 5 press release.

The downgrade affects about $3.8 billion in outstanding tax sales bonds and reflects reduced debt service coverage, strained financial operations and more, according to the release.

Donald Smith, a finance professor in Boston University’s School of Management, said the downgrade means a greater risk for investors.

“A credit rating entails an estimate of the probability that the issuer of a bond will default and not make an interest or principal payment that is due to the investor,” Smith said. “When a company’s bonds are downgraded, the implied probability of default goes up.”

Despite its implications, MBTA spokesman Joshua Robin said there are reasons for the downgrade.

“This downgrade is a result of long-term fiscal challenges,” he said. “It is a reflection of the financial situation of the nation.”

Moody’s downgraded the MBTA’s senior sales tax bonds from a rating of Aa1 to Aa2, according to the release.

Despite the downgrade, Robin said he is satisfied with the authority’s rating.

“Aa2 is still a very good rating and still reflects well on the MBTA,” he said.

Smith said it would be difficult for the MBTA to immediately regain its Aa1 rating.

“It is rare for a rating agency to quickly reverse a change in the rating, either up or down. Usually it has taken some time for the change to be made,” he said. “But, if financial circumstances improve, the rating can be changed again.”

In the statement, Moody’s also gave a list of changes that the MBTA might pursue as a means of restoring its rating.

Suggestions include an increase in pledged revenues and maintenance, established trends for stabilized financial operations and a change in legal covenants, according to the release.

But Moody’s also highlights some strengths of the MBTA, including the 23 percent increase in fares and gross “satisfactory” debt service coverage.

Robin said the MBTA is looking to minimize the damage of a reduced credit score in an attempt to stabilize its future.

“The report says that if we remain stable and we work to improve our financial situation, we could eventually regain our credit rating,” Robin said.

Smith said the lowered rating should not impact ridership, although the higher cost of funds means more interest expense in the future and, therefore, less availability for other investments.

Despite an increase in fares resulting from the MBTA’s ongoing struggle with billions of dollars of debt, T riders expressed understanding for the MBTA’s financial problems.

Robert Dello Russo, a 34-year North End resident who owns Boston Barber Co., said he has high hopes for the future of the MBTA.

“I have lived here all my life … the ‘T’ is a pretty big part of Boston,” Dello Russo said. “The economy has been horrible, and it’s been hard on the ‘T,’ but I think as the economy bounces back, so will the ‘T.’ I have no doubt about that.”

Kelsey Dielman, a sophomore in BU’s College of Communication, said she is willing to deal with the repercussions of the MBTA’s financial woes.

“I was kind of angry back when they raised the fare a few months ago,” Dielman said, “but I know the MBTA has been struggling financially for a long time, and I would rather pay a little more than lose it altogether.”

Despite the rating downgrade, Robin praised the MBTA’s role as a quintessential purveyor of public transportation in Massachusetts.

“Looking at transportation needs across the state, the MBTA has done a very good job of serving the people of Massachusetts,” he said. “And I have no doubt we will continue to do so.”

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